While the growth of postfordist industrial districts in certain locations in the developed world has been well documented, the impact of the shift toward flexible production in the so‐called third world has received less attention. This paper is an attempt to incorporate the dynamic, networked, manufacturing family firms in parts of China into the flexible industrial district debate. We argue that dense networks of small firms emerging in rural China in many ways resemble the industrial districts of the ‘Third Italy’ and elsewhere: they are globally competitive in producing for fast‐changing fashionable market niches, they contain networks of relatively autonomous small firms which are at least partially locally owned and managed and which often take part in high‐value activities such as design and marketing. We suggest that the social embeddedness of investment and production linkages with ethnic Chinese firms in Hong Kong and Taiwan may be an effective substitute for the spatial concentration of suppliers, producers, designers, and final markets, which is recognized as an important source of innovation and flexibility in core industrial districts.