European companies double down on China manufacturing despite EU de-risking push

A recent survey by the European Union Chamber of Commerce in China reveals that many European companies are choosing to either maintain or expand their supply chains in mainland China. The findings show that nearly one-third of the surveyed businesses are increasingly onshoring in China, while 37% have not altered their supply chain strategies over the past two years. The survey, which gathered insights from approximately 300 members between January and February, indicates that a significant 68% of respondents are either continuing or expanding their operations in China. In contrast, only 7% reported relocating factories or establishing alternative manufacturing bases outside the country. Jens Eskelund, President of the EU Chamber of Commerce in China, commented that the trend does not suggest a widespread move towards de-risking. Instead, it highlights a growing dependence of European companies on China as a key sourcing and manufacturing hub. China currently accounts for around 28% of global manufacturing output, despite trade tariffs imposed by the U.S. and EU. The European Commission has yet to respond to inquiries regarding its stance on this issue, amid ongoing scrutiny of China's trade practices. Notably, 24% of EU chamber members indicated they are diversifying their strategies by expanding in China while also seeking alternative suppliers. Cost factors play a crucial role in this decision-making. The EU Chamber's survey identified relatively low labor costs as a driving force behind the increase in production within China. However, labor shortages are leading many factories to adopt automation at an accelerated pace. Denis Depoux, a senior partner at consulting firm Roland Berger, noted that the rapid advancements in automation are reshaping the manufacturing landscape. For instance, the Chinese electric vehicle manufacturer Nio has integrated 941 robots into one of its factories, allowing for fully autonomous operations across various vehicle models without human intervention. This level of automation enables continuous production, which is a significant advantage in the competitive manufacturing ecosystem. Roland Berger’s report titled "China's cost and speed advantage: A wake-up call for Western companies" highlights that lower industrial energy prices and raw material costs in China contribute to its manufacturing efficiency. Additionally, Chinese firms often benefit from quarterly negotiations with suppliers and selective state subsidies, allowing them to deliver products to global markets at competitive prices. The survey found that about three-fourths of EU companies in China consider their production facilities there to be more efficient than those in other regions. Eskelund emphasized that in many industries today, the presence of Chinese competitors makes it essential for companies to engage with Chinese supply chains to remain competitive in terms of pricing and quality.