China now accounts for roughly 28% of global manufacturing value added, more than any other country or bloc and over triple its share in 2004, according to World Bank data.

The US share has fallen to about 17% from 22% over the same period, while the Eurozone has slipped to around 15% and Japan to just 5%.

As IntelliNews reported, China and Russia have become the industrial-production superpowers that could win a war, noting China is now "the world's sole manufacturing superpower" and Russia leads in Europe, with a productive capacity exceeds Germany's.

There are three strands to the story: the West's fading old growth model, Russia's grinding progress on import substitution, and the new friction points opening up between China and Europe's defence-industrial base.

Germany's old growth model is fading faster than a new one is emerging

Thanks to a boomerang effect, the extreme sanctions on Russia have backfired. Germany's autos, chemicals and machinery sectors remain 15-20% below their pre-Covid peaks, German journalist  Holger Zschaepitz noted on X on July 27, citing Goldman Sachs projections that IT services (+0.25 percentage points of annual growth), defence (+0.1pp) and electrification will be the country's next growth engines — modest gains against the scale of the industrial base being hollowed out.

Share of global manufacturing value added, 2004-2025. Source: World Bank, via The Kobeissi Letter.

Russia's import substitution is real, but slow and expensive

As IntelliNews reported, the sanctions have forced Russia to innovate and replace the now inaccessible goods it once bought from Europe. Russian industry remains structurally dependent on foreign inputs even as it substitutes them: 52% of Russian companies cannot find domestic alternatives to foreign machine tools, and 45% report shortages of components, according to former National Bank of Ukraine (NBU) governor Kyrylo Shevchenko. Local equipment purchases have risen from a third of the total in 2022 to 53% now, and overall import substitution has climbed from 30% to 50% — but the hardest gaps, in microelectronics, aviation and energy equipment, remain unresolved, with a full exit from import dependence still 7-10 years away even with sustained state support.

The cost of that gradual substitution is higher expenses, slower modernisation and weaker productivity — the flip side of the same manufacturing-power narrative that flatters Russia's aggregate industrial output.

China's exports are becoming a lever against Europe's defence firms

Beijing remains the world’s dominate manufacturer, but it is increasingly using that market power as a political weapon in a low-watt trade war with the West.

This week China restricted dual-use exports to German defence group Rheinmetall (ETR: RHM) and Czech firm Tatra Trucks, among 14 EU entities, in direct response to the EU's 21^st sanctions package  targeting Chinese firms. The curbs land on a lopsided trade relationship where Europe trade deficit with China is swelling at an alarming rate: China-Germany bilateral goods trade hit roughly €251-253bn in 2025, with Germany importing about €170-171bn from China against exports of only €81-82bn, while Germany's arms and ammunition imports from China totalled just $17mn in 2024.

That imbalance means the restrictions mostly raise supply-chain costs and risk for European defence firms supporting Ukraine, rather than threatening core military hardware directly — but it shows Beijing is willing to use its manufacturing weight as retaliatory leverage against Europe's own defence-industrial expansion, precisely the sector the West is racing to rebuild.