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

European companies are increasingly maintaining or expanding their supply chains in mainland China to stay competitive globally, a survey by the European Union Chamber of Commerce in China has found. According to the report released on Wednesday, nearly one-third of respondents stated that they were onshoring further in China, while 37% said they had not changed their supply chain strategy over the past two years.

The survey, based on responses from nearly 300 members familiar with their companies’ mainland China supply chain strategies, revealed that 68% of respondents were either staying or expanding operations in China. In contrast, only 7% mentioned moving factory sourcing outside the country or setting up alternative manufacturing bases elsewhere.

Jens Eskelund, President of the EU Chamber of Commerce in China, commented, “We don’t see de-risking becoming a theme. If anything, it would indicate that European companies continue to be more dependent on China as a sourcing and manufacturing location for their products.”

China currently accounts for about 28% of goods manufactured globally, despite U.S. and EU tariffs. The European Commission is reportedly increasing its scrutiny of China’s trade practices. About 24% of EU chamber members surveyed said they were diversifying by both expanding in China and establishing alternative suppliers elsewhere.

The shift towards maintaining or expanding supply chains in China is also influencing how global logistics companies operate. Chinese companies are taking greater control over overseas supply chains as they expand globally, particularly in sectors like electric vehicles, batteries, and consumer electronics.

Cost is a significant factor driving European companies to increase production in China, with relatively low labor costs and increasing automation playing key roles. The EU Chamber survey found that automation is becoming more prevalent in Chinese factories, leading to increased productivity and efficiency.

For example, Chinese electric vehicle maker Nio operates a factory in China with 941 robots that can work autonomously across multiple vehicle models simultaneously, without the need for workers on the production floor. This level of automation, combined with access to lower industrial energy prices and raw material costs, allows Chinese products to reach global markets earlier and at lower costs.

Three-fourths of EU companies in China reported that their production facilities in the country were more efficient than operations elsewhere. This trend underscores the importance of being part of Chinese supply chains for companies looking to compete on price and quality in various industries.

In conclusion, the survey results highlight the growing reliance of European companies on China as a key sourcing and manufacturing location. By leveraging Chinese supply chains and embracing automation, these companies are positioning themselves to remain competitive in the global marketplace.