European companies are doubling down on manufacturing in China despite EU threats

BEIJING – Many European companies are keeping or expanding their stores in China in order to continue to compete globally, according to a study released on Wednesday by the European Union Chamber of Commerce in China.

About one-third of respondents said they were still moving into China, while 37% said they had not changed their procurement strategy in the past two years, the report said.

The survey was based on the responses of nearly 300 members collected from January to February who were familiar with their companies’ strategies in China.

Overall, 68% of respondents said they are staying or expanding their careers in China. In comparison, only 7% said they were moving factory equipment out of the country or setting up other production bases elsewhere, the report said.

“We don’t see any kind of risk in being a body,” said Jens Eskelund, President of the EU Chamber of Commerce in China.

“If anything it can show that European companies continue to depend heavily on China as a place where their products are sourced and manufactured,” he said.

Cost is one of the main reasons why European companies are expanding production in China, an EU Chamber survey found.

China’s relatively low labor costs have helped power its role as a global manufacturing hub. But as factories face labor shortages, many have embraced automation — quickly.

“Labour costs, which may be decreasing anyway, are becoming increasingly redundant, because [of] are changing,” says Denis Depoux, senior partner, global managing director at Roland Berger, a consulting firm that helps the EU Chamber compile research.

“The difference is the level of automation [versus] two years ago it’s mind boggling. You don’t see anyone anymore,” he said, referring to his visit this week to a private Chinese copper producer.

Depoux added that while automation may initially cost more than human labor, factories can eventually produce products much faster.

For example, a Chinese electric car maker Niowhich has expanded in Europe, said that one of its factories in China operates with 941 robots that can operate autonomously on all types of vehicles at the same time – without workers on the production floor. That setup allows the factory to run around the clock.

It’s all part of a local manufacturing ecosystem with access to low industrial energy prices and raw material costs, Roland Berger pointed out in a March report titled “China’s Cost and Speed: A Wake-up Call for Western Companies.”

The report added that quarterly price negotiations with suppliers and selective government subsidies often help Chinese products reach global markets earlier and at lower costs.

Almost three-quarters of EU companies in China said their production facilities in the country were more efficient than operations elsewhere, the chamber’s survey found.

“In most industries today, you have at least one Chinese competitor, or an international competitor, that uses Chinese supply chains,” Eskelund said.

“So I think that in many industries, if you can compete on price and quality, you just need to be part of the Chinese chains,” he said. “It’s not because you want to go to the beach [to] China.”