New survey data indicates a persistent and even growing commitment by European companies to their supply chain operations within mainland China, defying broader geopolitical narratives of de-risking and diversification away from the region. Findings released Wednesday by the European Union Chamber of Commerce in China reveal that a significant portion of surveyed member companies are either maintaining or actively expanding their presence in China. Approximately one-third of respondents reported further onshoring activities, while an additional 37% indicated no alteration to their existing supply chain strategies over the past two years. Cumulatively, 68% of participants expressed an intention to remain or grow their operational footprint in China, a stark contrast to the mere 7% who indicated plans to relocate sourcing or manufacturing bases elsewhere.
Market Implications of Supply Chain Persistence
This trend suggests that the imperative of global competitiveness and cost efficiency continues to heavily influence strategic decision-making for European businesses operating in China. The prevalence of these strategies underscores a deep-seated reliance on China’s manufacturing capabilities and established logistical networks. Jens Eskelund, President of the EU Chamber of Commerce in China, commented on the findings, noting, “We don’t see sort of de-risking becoming a theme.” He further elaborated that this dynamic suggests European firms remain “more dependent on China as a sourcing and manufacturing location for their products.” Despite ongoing trade tensions and scrutiny of China’s trade practices by entities like the European Commission, and the imposition of U.S. and EU tariffs, China’s substantial share of global manufacturing output—around 28%—appears to outweigh these concerns for a majority of surveyed companies.
Diversification Strategies and Evolving Logistics
While the dominant theme is retention and expansion, a portion of companies are pursuing a dual strategy. Around 24% of EU chamber members indicated a move toward diversification, involving both expansion within China and the simultaneous establishment of alternative supplier networks. This evolving landscape is also reshaping the operational paradigms of global logistics providers. Michael Aldwell, executive vice president for sea logistics at Kuehne+Nagel, observed a marked increase in Chinese companies assuming greater control over their global supply chains. “We see a rising amount of business in our industry that’s controlled, decided, shipped, and paid for here in China,” Aldwell stated, highlighting sectors such as electric vehicles, batteries, and consumer electronics. He attributes this shift to the increasing maturity of China-based supply chain management organizations and the rapid pace of innovation in key industries, prompting Chinese firms to proactively manage their global distribution networks.
The Role of Automation and Cost Advantages
The EU Chamber survey identified cost as a primary driver for European companies increasing production in China. While historically lower labor costs have been a significant factor, the increasing adoption of automation is now playing a pivotal role. Denis Depoux, senior partner and global managing director at Roland Berger, a consulting firm that assisted in compiling the survey, noted the diminishing relevance of labor costs due to automation. “The difference in the level of automation [versus] two years ago is mind-boggling,” he remarked, emphasizing the transformative impact of technological integration. Although automation entails initial investment, it facilitates accelerated production cycles and enhanced efficiency. For instance, Chinese electric vehicle manufacturer Nio reportedly operates a factory utilizing over 900 robots for autonomous, round-the-clock production. This operational advantage is further bolstered by access to competitive industrial energy prices, raw material costs, and supportive state subsidies, as detailed in a Roland Berger report. Consequently, approximately three-fourths of EU companies operating in China reported their domestic production facilities as being more efficient than their counterparts elsewhere.
Business Style Takeaway: European companies’ sustained investment in Chinese supply chains highlights the enduring competitive advantages of manufacturing and logistics in the region, driven by automation and ecosystem efficiencies. This strategic imperative necessitates that global players either integrate into Chinese supply chains or develop robust strategies to counter the cost and speed benefits derived from them, impacting global trade dynamics and corporate investment decisions.
Information compiled from materials : www.cnbc.com