BEIJING — European manufacturers keep pouring resources into Chinese production lines. They do so even as politicians in Brussels talk tough about reducing reliance on Beijing. A new survey lays bare the gap between rhetoric and reality.
Nearly one-third of European companies said they expanded operations deeper inside China. Another 37% left their supply chain approach untouched over the past two years. All told, 68% either stayed put or grew their footprint there. Just 7% pulled manufacturing elsewhere or built parallel bases outside the country. These numbers come from nearly 300 executives surveyed between January and February by the European Union Chamber of Commerce in China.
“We don’t see sort of de-risking becoming a theme,” Jens Eskelund, president of the EU Chamber, told CNBC. “If anything it would indicate that European companies continue to be more dependent on China as a sourcing and manufacturing location for their products.”
Cost explains much of the decision. Labor expenses that once drew factories to China have faded in importance. Automation changed the math. Factories now run with fewer humans. Output rises. Expenses drop. The difference from just two years ago stands out sharply.
“The cost of labor, which might be lower anyway, is becoming irrelevant itself, because of automation,” said Denis Depoux, senior partner and global managing director at Roland Berger. The consulting firm helped prepare the chamber survey. Depoux visited a privately owned Chinese copper manufacturer days before speaking. “The difference in the level of automation versus two years ago is mind-boggling. You don’t see anybody anymore.”
Automation brings speed too. Chinese electric vehicle producer Nio operates a plant with 941 robots. Those machines handle multiple vehicle models at once. They run nonstop without workers on the floor. Such setups deliver efficiency that competitors outside China struggle to match.
Three-quarters of the surveyed EU firms reported their Chinese production sites outperform operations elsewhere. Lower industrial energy prices help. So do cheaper raw materials and frequent price negotiations with suppliers. State subsidies sometimes accelerate the process. Chinese goods reach global markets faster and cheaper as a result. Roland Berger spelled out these advantages in a March report on China’s cost and speed edge.
But. The political pressure keeps building. The European Union eyes new rules that could compel companies to source critical parts from at least three different suppliers. The goal is clear: break single-country dependence. The Financial Times reported on these draft plans in mid-May. Executives worry about added costs and complexity. Some sectors lack ready alternatives at commercial scale.
China still produces roughly 28% of the world’s manufactured goods. Tariffs from Washington and Brussels have not dislodged that position. The European Commission has stepped up scrutiny of Chinese trade practices. Yet boardroom calculations favor participation over withdrawal. “In most industries today, you have at least one Chinese competitor, or an international competitor, that are part of Chinese supply chains,” Eskelund noted. “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.”
Some companies try both paths. About 24% said they expand inside China while also setting up suppliers elsewhere. Diversification sounds prudent. Reality bites harder. A separate EU Chamber report from earlier this year found 22% of members import critical components with no alternative sources. Another quarter could switch but only to lower-quality options. Diversification often raises expenses.
Recent developments add fresh tension. The conflict involving Iran has driven up commodity prices and disrupted logistics. European chemical makers face squeezed margins and production cuts. The Financial Times detailed how fertiliser groups scaled back output after sulphur supplies tightened. Such shocks remind executives why they value China’s integrated manufacturing base.
Meanwhile, Chinese factories push automation even further. A CNBC report this month examined how Beijing prepares humanoid robots for the workforce through specialized training programs. The machines target roles once filled by people. This acceleration widens the efficiency gap.
Consultants at Roland Berger warn Western firms risk falling behind if they ignore the trend. Chinese players set the pace in speed to market. Quarterly supplier talks and targeted support let them iterate products quickly. European executives who visited plants describe empty floors and nonstop robot lines. The image lingers.
Geopolitical storms have not changed the fundamental equation. Global companies, including American and European ones, increasingly partner with Chinese innovators to manage volatility. Reuters quoted JPMorgan’s Global Chair of Investment Banking Anu Aiyengar saying such tie-ups feel less risky than solo ventures in turbulent times. Deal flow keeps climbing.
Europe’s own policy moves reveal the bind. A proposed Industrial Acceleration Act would tighten localization requirements for market access in autos and other sectors. Chinese component makers would face higher hurdles. Yet many European brands already produce vehicles in China for export. The cars made there carry competitive advantages hard to replicate at home.
Renault’s chief executive recently claimed European manufacturing now beats China on some metrics. Most data from the ground tell a different story. Efficiency surveys, robot density figures, and executive visits point to Chinese sites pulling ahead.
The EU Chamber survey captures a pragmatic mood. Companies don’t chase China because they love the politics. They chase it because the numbers work. Automation stripped labor cost differences. Scale, supplier networks, and energy prices did the rest. Three out of four EU firms in China say their local plants deliver superior performance.
That leaves policy makers in a tough spot. They draft rules to force diversification. Businesses calculate the price of compliance and often decide the cost of staying beats the cost of leaving. The result is a slow-motion divergence. Rhetoric races one direction. Capital and production flow another.
Watch the robot count in Chinese factories. Track how many European executives return from plant tours praising empty floors. Those visits shape decisions more than speeches in Brussels. For now, the data shows European companies doubling down where the machines never sleep.
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