Despite growing political pressure from Western governments to cut ties and ‘de-risk’ from Beijing, European companies are actively maintaining or expanding their supply chains in mainland China, a survey has found. According to the survey by the European Union Chamber of Commerce in China, businesses are deepening their local roots simply to remain competitive on the global stage. The report (via CNBC), which collected data between January and February from nearly 300 member companies, reveals a gap between political rhetoric in Europe and the economic realities on the factory floor.
‘European companies want to stay competitive’
While European and US politicians discuss trade barriers, European executives are making a different calculation. A total of 68% of the companies surveyed stated they are either keeping their operations exactly as they are or expanding them within China.The report also said that nearly one-third of the responding businesses are increasing their ‘onshoring’ efforts by moving more of their supply chain into China. Moreover, another 37% reported that their supply chain strategy has remained unchanged over the last two years. The report also points that about 24% are pursuing a dual strategy, expanding their presence inside China while simultaneously looking for alternative backup suppliers in other countries.On the contrary, only 7% of respondents said they are moving their factory sourcing completely out of China or establishing primary alternative manufacturing bases elsewhere.“We don’t see sort of 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,” Jens Eskelund, President of the EU Chamber of Commerce in China, was quoted as saying.
Rise of factory automation
For decades, Western firms moved production to China to capitalise on low labor costs. The report said that today, as China faces domestic labor shortages, factories have rapidly pivoted to heavy automation, completely shifting the cost equation.Denis Depoux, global managing director at the consulting firm Roland Berger – which helped assemble the survey – noted that the speed of this transition has been unique.“The cost of labor, which might be lower anyway, is becoming irrelevant itself, because [of] automation,” Depoux said, describing a recent visit to a Chinese copper manufacturer, adding, “The difference in the level of automation [versus] two years ago is mind-boggling. You don’t see anybody anymore.”Installing robots requires high upfront capital but it allows factories to manufacture goods much faster. For example, Chinese electric vehicle manufacturer Nio utilizes a factory equipped with 941 fully autonomous robots. These machines operate across multiple vehicle models simultaneously around the clock, entirely without human workers on the production floor.Ultimately, European businesses report that avoiding China is no longer a viable option if they wish to survive globally. With local and international rivals heavily leveraging Chinese efficiencies, companies must embed themselves in these networks to keep up.