Beijing, China – A significant majority of European companies operating in mainland China are either maintaining or actively expanding their supply chain operations within the country, driven primarily by the imperative to remain globally competitive. This key finding emerged from a comprehensive survey released Wednesday by the European Union Chamber of Commerce in China, underscoring a deepening reliance on the Chinese manufacturing ecosystem despite ongoing geopolitical tensions and calls for supply chain diversification.
The survey, which gathered insights from nearly 300 member companies between January and February, revealed that 68% of respondents were either staying put or actively expanding their operations in China. A notable segment, approximately one-third (33%), indicated they were "onshoring further" within China, suggesting a strategy of greater localization and integration into the domestic supply chain. Another 37% reported no change to their existing supply chain strategy over the past two years, signaling a steady commitment to their current China footprint. In stark contrast, only a meager 7% of European firms indicated they were moving factory sourcing outside of China or establishing alternative manufacturing bases elsewhere, challenging the narrative of a broad exodus or significant "de-risking" from the world’s second-largest economy.
Jens Eskelund, President of the EU Chamber of Commerce in China, articulated the survey’s implications with clarity. "We don’t see sort of de-risking becoming a theme," Eskelund stated, directly addressing the prevailing discussions in Western capitals about reducing economic dependencies on China. He further elaborated, "If anything, it would indicate that European companies continue to be more dependent on China as a sourcing and manufacturing location for their products." This sentiment highlights a strategic dilemma for many European businesses: while political rhetoric might lean towards reduced reliance, economic realities and competitive pressures compel them to deepen their engagement with China’s formidable industrial base.
The Enduring Allure of China’s Manufacturing Powerhouse
China’s role as a global manufacturing hub remains unparalleled, accounting for an estimated 28% of goods manufactured worldwide. This dominance persists despite various challenges, including the imposition of tariffs by both the U.S. and the EU, and increased scrutiny from the European bloc regarding China’s trade practices. The European Commission has reportedly been ramping up its examination of these practices, yet the fundamental attractiveness of China’s supply chain ecosystem for European businesses appears largely undiminished.
A nuanced strategy observed among some firms is diversification that still incorporates China. Approximately 24% of EU chamber members responding to the supply chain question indicated they were diversifying by both expanding their operations in China and simultaneously establishing alternative suppliers elsewhere. This "China+1" or "China-plus-some-other-location" approach suggests a hedging strategy rather than a wholesale departure. Companies are seeking to build resilience by having options, but critically, China remains a core component of their global manufacturing and sourcing strategy. This approach acknowledges the need for risk mitigation while still capitalizing on China’s unique advantages.
The ramifications of this sustained engagement extend to the global logistics sector, which is witnessing a transformative shift. Michael Aldwell, executive vice president for sea logistics at the Swiss shipping company Kuehne+Nagel, noted a growing trend where Chinese companies are asserting greater control over overseas supply chains as they expand their global reach. Aldwell observed, "We see a rising amount of business in our industry that’s controlled, decided, shipped, and paid for here in China." This trend is particularly pronounced in rapidly evolving sectors such as electric vehicles (EVs), batteries, and consumer electronics, where Chinese firms are often at the forefront of innovation and market penetration. He explained that "when the China-based supply chain management organization is more mature than the destination market, or where you’ve got rapid change in an industry, the Chinese companies are choosing to take control over that supply chain." This indicates a shift from China primarily being a manufacturing base to becoming a strategic command center for global supply chain operations in certain industries.
Automation and Efficiency: The New Drivers of Cost Advantage
While China traditionally leveraged relatively low labor costs to power its ascent as a manufacturing giant, the current survey points to a more sophisticated set of drivers for European companies’ continued investment: automation and unparalleled efficiency. Cost remains a primary motivator, but the mechanisms by which China delivers cost advantages have evolved significantly.
Chinese factories, facing demographic shifts and potential labor shortages, have rapidly embraced automation on an unprecedented scale. Denis Depoux, senior partner and global managing director at Roland Berger, a consulting firm that assisted the EU Chamber with the survey, highlighted this transformation. "The cost of labor, which might be lower anyway, is becoming irrelevant itself, because [of] automation," Depoux remarked. He vividly described his recent observations during a visit to a privately-owned Chinese copper manufacturing company: "The difference in the level of automation [versus] two years ago is mind-boggling. You don’t see anybody anymore." This rapid technological adoption allows factories to produce goods more quickly and with greater consistency, ultimately offsetting initial investment costs and boosting overall productivity.
A compelling illustration of this advanced automation comes from Chinese electric vehicle maker Nio, which has expanded its footprint into Europe. One of Nio’s factories in China operates with 941 robots, capable of working fully autonomously across multiple vehicle models simultaneously, often without human workers on the production floor. This high level of automation enables the factory to operate around the clock, significantly enhancing production capacity and speed to market.
The "China’s cost and speed advantage" report published by Roland Berger in March further elaborates on this ecosystem. It posits that China offers a unique confluence of factors, including a robust local manufacturing ecosystem, access to competitive industrial energy prices, and favorable raw material costs. Additionally, the report highlighted the role of quarterly negotiations with suppliers on pricing and selective state subsidies, which collectively contribute to Chinese products reaching global markets earlier and at significantly lower costs. These systemic advantages create a formidable competitive landscape, making it difficult for companies to disengage from China without incurring substantial penalties to their global market position.
The efficiency gains are not merely anecdotal; the EU Chamber’s survey data corroborates them. Approximately three-fourths of European companies with production facilities in China reported that these operations were more efficient than their counterparts elsewhere in the world. This statistic underscores a critical point: for many European firms, China is not just a place to manufacture cheaply, but a place to manufacture better and faster.
Jens Eskelund summarized this competitive imperative succinctly: "In most industries today, you have at least one Chinese competitor, or an international competitor, that are leveraging Chinese supply chains." He concluded, "So I think in many industries, if you are able to compete on price and quality, you simply need to become a part of Chinese supply chains. It’s not necessarily because you want to onshore on [to] China." This clarifies that the decision to maintain or expand in China is often a defensive strategy, a necessity to compete effectively against rivals who are already capitalizing on China’s advanced manufacturing capabilities.
Broader Implications for European Policy and Global Trade
The findings of the EU Chamber of Commerce in China survey present a complex picture for European policymakers. On one hand, there is a growing political discourse within the EU and among its allies, particularly the United States, advocating for "de-risking" or even "decoupling" from China to reduce economic vulnerabilities and address geopolitical concerns. Yet, the actions of European businesses, as evidenced by this survey, suggest a powerful counter-current driven by commercial realities.
The deep integration of European companies into China’s supply chains means that any rapid or forced disengagement could lead to significant competitive disadvantages, increased costs for consumers, and potentially a loss of global market share for European brands. This creates a delicate balancing act for the EU: how to pursue strategic autonomy and mitigate risks without undermining the competitiveness of its own industries.
The "onshoring further in China" trend also implies a greater commitment to the Chinese domestic market. For many companies, manufacturing in China is not just about exporting to the world, but about serving China’s vast and growing consumer base. This dual role—as a global manufacturing hub and a crucial end-market—further complicates any efforts to significantly reduce economic ties.
Looking ahead, the trajectory of European corporate engagement with China’s supply chains will likely be influenced by several factors. Continued advancements in automation and industrial efficiency within China will solidify its cost and speed advantages. Geopolitical developments, including the ongoing U.S.-China trade and technology competition, will remain a significant variable, potentially influencing policy decisions in Brussels and individual European capitals. Furthermore, the capacity and willingness of other regions to replicate China’s manufacturing scale, speed, and cost-effectiveness will determine the viability of genuine large-scale diversification efforts.
Ultimately, the survey’s results underscore a fundamental truth in global economics: despite political headwinds, commercial logic, driven by the relentless pursuit of competitiveness, often dictates corporate strategy. For European companies, remaining deeply embedded in China’s advanced, efficient, and increasingly automated supply chains appears to be a strategic imperative for thriving in the global marketplace. This reality poses significant questions for Europe’s future industrial policy and its broader geopolitical strategy concerning China.
