China+1 Strategy in 2026: Can Vietnam Replace China Manufacturing, and What Starmer’s China Reset Means

In 2025, there were numerous discussions about relocating production away from China. However, as time has passed and events have unfolded, the conversation has shifted. It’s now likely that many will never move production out of China because they underestimate what would be required to replace it.

I have been in the manufacturing business for a while now. Long before “China+1” became a common phrase, we were already operating in Vietnam alongside our facilities in China. We noticed that labour was cheaper, the workforce was young, and many believed Vietnam was “the next China.”

I worked with a few factories there and learned something that changed how I think about supply chains. Although labour costs were lower, our efficiency was significantly lower than in China. Vietnam could handle simple products, but anything complex ended up going back to China. This wasn’t due to a lack of capability among the Vietnamese workforce, but because the supporting supply chain was not mature enough.

What is the China+1 strategy?

“China+1” means keeping some production in China while adding at least one more country, so you're not dependent on a single location. The goal isn’t a full exit from China; it’s about spreading risk. Tariffs, political tensions, shipping disruptions, and sudden shutdowns are easier to manage when you have multiple production bases.

Can Vietnam replace China for manufacturing?

For some products, Vietnam is a strong option. Its manufacturing base has grown rapidly in recent years, but growth alone doesn’t provide the same depth and scale as China.

Vietnam is well-suited for stable, labour-intensive production, especially when the local supplier base is established. However, it struggles with more complex manufacturing that requires fast iteration, specialised tooling, and close access to sub-tier suppliers.

Another important factor is inputs. Even if final assembly moves to Vietnam, many components still come from China. A U.S. International Trade Commission briefing on Vietnam’s value chains notes that, in some electronics sectors, imported inputs remain heavily concentrated, with China as a major source.

Why is China so hard to replace?

China is hard to replace because of its manufacturing density. There, I was accustomed to having material suppliers nearby, tooling fixes done quickly, and workers who had seen the same issues many times before. When something went wrong, the question was, “How fast can we fix it and still ship on time?”

In Vietnam, every small issue took longer, not drastically longer, but consistently so. Those minor delays compounded over time. Over weeks and months, they led to missed shipping windows, higher rework rates, and slower production ramps.

What happens when the scale hits?

This is where many “we moved out of China” announcements start to fall apart. A company qualifies a new factory, the samples look good, and the first few orders ship without issues. But once they try to scale, problems start to show.

At scale, you learn whether the new site can keep yields consistent, maintain quality at higher volumes, and respond quickly when defects arise. You also find out whether the broader supplier network, including the suppliers’ suppliers, can keep up. If it can’t, China still ends up handling the complex work, while the new site is left with the simpler tasks.

How do you know if you have done China+1 properly?

Here’s a simple test:

Can two factories in two different countries produce the same product, to the same specifications, and at the same level of quality with independent local supply chains?

If the answer is no, then it’s not true diversification; it’s added complexity. A second factory that can only handle the simpler products might still be useful, but it doesn’t eliminate your core dependency.

Why is the UK re-engaging with China in 2026?

Once you understand China+1 as “managed dependence,” you start to see the same approach reflected in government policy. The UK, for example, is trying to maintain access to trade and investment with China while also tightening its security rules.

In late January 2026, UK Prime Minister Keir Starmer is visiting China (the first trip by a British prime minister since 2018) to improve relations and promote economic cooperation, even as the government faces criticism over human rights and security concerns.

What is the UK’s China audit?

The UK’s “China audit” is a cross-government review launched in late 2024. Its goal is to provide ministers and departments with a shared, evidence-based understanding of the UK’s relationship with China, forming the basis for a longer-term strategy that addresses both economic prosperity and national security.

In a statement to Parliament on 24 June 2025, the Foreign Secretary described the audit as the foundation for a “progressive realism” approach, saying the UK would “co-operate where we can and challenge where we must.” He also emphasised that the audit is an ongoing process, not a one-off report, with much of the work conducted at a high level of classification.

The government has said the audit looks at opportunities for economic engagement, while also assessing risks related to state threats and national security—including espionage and cyber activity. Its findings have informed the 2025 National Security Strategy, as well as broader defence and trade policies.

However, the audit has faced parliamentary scrutiny, as it has not been released as a standalone public document. The House of Commons Foreign Affairs Committee has argued that both Parliament and the public have limited visibility into its scope and conclusions.

What changed in UK–China relations in 2025–2026?

In 2025–2026, UK–China relations shifted toward a strategy of selective re-engagement, paired with a firmer security stance. This approach combined renewed cooperation in targeted areas with increased vigilance over national security risks.

First, the UK resumed formal economic dialogue by reviving the UK–China Economic and Financial Dialogue (EFD) in January 2025. According to the government’s official fact sheet, the agreed outcomes were valued at £600 million over five years, with the potential to reach up to £1 billion over the same period.

Second, the UK reopened “targeted” scientific cooperation. In November 2025, Science Minister Lord Vallance led a delegation to China to pursue collaboration in specific fields, while the government made clear that national security would remain the overriding priority.

Third, in January 2026, the UK approved the construction of a new Chinese embassy at the former Royal Mint Court site near the Tower of London. The decision to grant planning permission went ahead despite public criticism over potential security and protest-related concerns.

Fourth, the UK strengthened its oversight of foreign influence through the Foreign Influence Registration Scheme (FIRS), which came into force in July 2025. Reports indicated that the government was considering stricter enforcement of the scheme in relation to China, but deliberately stopped short of designating China under the more restrictive “enhanced tier” category.

What does this mean for businesses using China+1?

For businesses pursuing a China+1 strategy, the UK’s China audit and the Foreign Secretary’s 24 June 2025 statement on “progressive realism,” which emphasises cooperating where possible and challenging where necessary, reflect a policy environment in which engagement with China is not considered optional. At the same time, expectations around resilience, security, and compliance are likely to rise for companies that buy from China, sell into China, or rely on China-based components.

In practical terms, this highlights that the idea that “China is over” is often a slogan rather than a workable plan. A more effective approach retains the advantages of China’s scale and deep supply ecosystem while reducing single points of failure. This starts with mapping dependencies in a way that supports business decisions, identifying which parts, materials, tooling, sub-suppliers, and services are difficult to replace at the required speed and quality. It also involves understanding where UK regulations may apply. For example, corporate transactions in certain sensitive areas may require mandatory notification under the National Security and Investment regime, which is built around 17 defined sectors.

A strong China+1 strategy involves allocating work based on comparative advantage while applying a risk lens. Complex steps that require dense supplier networks and fast iteration may remain in China, while stable and scalable operations can shift to the additional location. Both sites must operate in a consistent way so production can shift without sacrificing quality, using the same specifications, test methods, and data standards.

Traceability and human rights risk management also need to be built into operations from the start. UK transparency expectations, including those outlined in Section 54 of the Modern Slavery Act, shape what large companies are required to demonstrate about their supply chains. The UK government has explicitly tied its China approach to tighter oversight and stronger safeguards, even while maintaining space for trade.

Much of the audit remains unpublished and has been criticised in Parliament for lacking transparency. As a result, businesses should anticipate more scrutiny, even if clear public rules remain limited. The most practical response is to document exposure, diversify where feasible, and build auditable controls that meet the expectations of customers, regulators, and company boards.

Conclusion

Taken together, the reality of “China+1” in 2026 is that it is not a clean replacement strategy. It is a managed dependence approach built around what China still does better than anywhere else. China offers dense supplier ecosystems, rapid iteration, experienced labour, and the ability to solve problems quickly when things go wrong.

Vietnam can serve as a strong secondary base for stable, labour-intensive, and less complex production. However, the main lesson is that cost savings do not equal capability. When the supporting supply chain is thinner, and inputs still come from China, delays begin to add up. Scaling reveals hidden weaknesses, and complex work often ends up returning to China.

This is why the most useful test of diversification is operational rather than rhetorical. The key question is whether two sites in two different countries can produce the same product, to the same specification and quality, at scale.

The geopolitical landscape reflects the same logic. The United Kingdom’s approach to China in 2025 and 2026 includes selective re-engagement, such as reopening economic dialogue, pursuing targeted scientific cooperation, and approving a new Chinese embassy project. At the same time, the government is tightening national security and foreign influence oversight, reflecting the policy of cooperating where possible and challenging where necessary.

For businesses, the implication is clear. Treating the phrase “China is over” as a strategy is likely to lead to disappointment. A resilient approach begins by identifying what is truly difficult to replace, including components, sub-tier suppliers, tooling, testing, and engineering response times. It also involves shifting what can be shifted without compromising quality or delivery schedules. Companies must build strong, auditable systems for traceability, human rights risk management, and regulatory compliance, especially as scrutiny continues to grow even when policy signals remain mixed.

In summary, the most effective strategy in 2026 is not to bet on a post-China world. It is to build a supply chain that can operate with China, withstand disruptions, and demonstrate sound governance.

FAQ

What does “China+1” mean in manufacturing?

“China+1” is a supply chain diversification strategy in which a company maintains some manufacturing in China while building meaningful capacity in at least one additional country. Common choices include Vietnam, India, Mexico, or Thailand. The goal is to reduce single-country risk. This approach is typically a split model rather than a full exit from China.

Can Vietnam replace China for manufacturing?

Partially, depending on the product type and complexity. Vietnam is often competitive for stable, labour-intensive production and certain assembly-heavy operations. However, replacing China entirely is difficult in cases that require dense sub-tier supplier networks, fast tooling iteration, and deep industrial services located nearby.

Even when final assembly is moved, many value chains remain heavily reliant on foreign inputs. A briefing from the United States International Trade Commission notes Vietnam’s role in assembling imported components. It also reports high levels of backward global value chain participation, especially in electronics, which indicates ongoing dependence on imported materials.

Why do companies struggle when they scale production outside China?

Because scaling tests the entire ecosystem, not just a single factory. Early pilot runs can succeed with extra attention and small volumes. However, when production increases, companies quickly discover whether the new location has the following:

• Reliable sub-tier suppliers

• Predictable lead times and logistics

• Sufficient tooling and maintenance capability

• Quality systems that can sustain high-volume production

This is one reason major assessments of Vietnam’s manufacturing growth often highlight productivity constraints and dependence on imported materials. These factors can lead to longer response times and complications in scaling production.

How do I know if my China+1 plan is working?

A practical test of resilience is whether two factories in two countries can produce the same product, to the same specifications and quality, at the required volume, with comparable yields and delivery performance. If the answer is "not yet," then your business may have added capacity but not achieved true redundancy. This speaks directly to the core aim of China+1, which is to reduce risk without losing the benefits of China’s mature industrial base.

What are the biggest China+1 mistakes?

Some of the most commonly reported pitfalls include:

• Choosing new locations based primarily on wage rates rather than total productivity, supplier depth, and logistics. Vietnam’s competitiveness is often paired with ongoing challenges in productivity and capability building.

• Moving too many complex stock-keeping units too quickly, before supplier networks and engineering support are proven at scale. Some companies slow down or reconsider their plans once operational issues arise.

• Underestimating tooling and sub-tier readiness, which can lead to longer iteration cycles and slower problem-solving, especially when key inputs are still imported.

• Failing to standardise testing methods and quality data across sites makes it difficult to shift production without quality issues.

• Relying on pilot runs as proof that large-scale operations will work, even though pilots often mask structural limitations that emerge only under sustained volume.

Why is the United Kingdom re-engaging with China in 2026?

The United Kingdom is pursuing selective engagement that supports economic and practical cooperation, while maintaining a cautious stance on security and values. This has included the relaunch of formal economic discussions through the Economic and Financial Dialogue, with the government reporting clear economic benefits. It has also reopened targeted science engagement, specifically framed to prioritise national security.

In January 2026, Prime Minister Keir Starmer visited China. This visit, described by many as the first by a British prime minister since 2018, was presented as a key part of the United Kingdom's broader diplomatic reset.

Is the United Kingdom choosing trade over national security?

According to the government’s stated position, it is seeking to balance both goals. Officials aim to engage where useful while also strengthening safeguards. This dual approach is visible in two key developments.

First, official messaging has emphasised that scientific cooperation will be limited and pragmatic, with national security remaining the top priority. Second, the government has introduced new counter-influence measures such as the Foreign Influence Registration Scheme. This scheme came into effect on 1 July 2025. Public reporting on the scheme has noted political debate about whether, and how strongly, it should apply to China. This reflects an ongoing tension between openness and national security.

Should United Kingdom businesses leave China now?

For most companies, the evidence does not support an all-or-nothing approach. A more practical strategy is one of managed dependence. This means continuing to use China for operations that are difficult to replicate, such as those requiring complex engineering, fast iteration, or dense supplier networks. At the same time, companies can begin to build out capacity in a second location for processes that can be duplicated without compromising quality, timelines, or compliance.

Recent reporting shows that relocating supply chains can be expensive and operationally difficult. In addition, changes in tariffs or geopolitical conditions can quickly shift the cost-benefit equation. For these reasons, China+1 should be seen as a strategy to increase resilience, not simply to reduce costs.