Why Are European Companies Still Increasing Their Investment in Chinese Manufacturing: The Industrial Reality Under the De-Risking Narrative

Why European Companies Are Still Doubling Down on Manufacturing in China: Industrial Reality Under the De-Risking Narrative

European companies’ dependence on manufacturing in China has not declined significantly because of political slogans. On the contrary, more and more companies are choosing to maintain, and even expand, their supply chain footprint in mainland China. This does not mean that “de-risking” has completely failed; rather, it shows that global manufacturing is entering a more realistic phase: companies’ location logic has shifted from geopolitical signaling to production efficiency, delivery speed, and system cost.

The European Chamber of Commerce in China’s latest survey shows that among the member companies surveyed, nearly one-third said they would further “localize in China,” while another 37% said their supply chain strategy had not changed over the past two years. In total, 68% of respondents chose to stay in China or expand operations; only 7% said they had shifted factory procurement outside China or established alternative manufacturing bases elsewhere. This ratio itself shows that European companies’ assessment of manufacturing in China is no longer just a matter of whether costs are high or low, but whether they can remain competitive after leaving.

More noteworthy is that about 24% of the surveyed companies are adopting a “dual-track strategy” — expanding production in China while also looking for alternative suppliers overseas. This approach reflects the real picture of Asia’s current supply chain restructuring: companies are not simply exiting China, but are segmenting capacity, dispersing risk, and allocating regionally. In other words, China remains the core manufacturing node, but companies are beginning to shift some non-core links to ASEAN, South Asia, or other regions to build a more flexible delivery network.

Behind this change, the biggest driver is not trade rhetoric, but the upgrading of the manufacturing system itself. China’s manufacturing industry historically built its advantage on relatively low labor costs; today, that logic is being rewritten by automation. Roland Berger, which participated in the related survey, pointed out that labor costs are becoming less important because automation has changed factories’ cost structures. More importantly, automation does not just reduce labor needs; it also improves takt time, stability, and multi-model switching capability, allowing factories to respond more quickly to global orders.

In the survey, about three-quarters of European companies believed that their production facilities in China were more efficient than those in other regions. This assessment is not surprising. The competitiveness of Chinese manufacturing is no longer limited to a single factory, but comes from a complete industrial ecosystem: supporting components, a mature supplier network, access to energy and raw materials, a fast price-negotiation mechanism, and large-scale production capacity oriented toward global markets. For European companies, what is truly difficult to replicate is not a particular production line, but the entire system of industrial coordination.This also explains why “de-risking” is easy to emphasize at the policy level, but very difficult to fully implement at the business level. European regulators are more concerned with supply chain security, strategic dependence, and the trade balance with China; but corporate financial statements face a different reality: if producing in China allows products to be delivered at lower cost and faster speed, then the price of exiting China may be far higher than the political risks of maintaining a presence there. Especially in highly competitive sectors such as automotive, industrial equipment, chemicals, and electronics, the production location itself has become part of competitiveness.

The case of Chinese electric vehicle companies further reinforces this judgment. Nio disclosed that its factory in China is equipped with 941 robots, enabling fully automated operation across multiple vehicle models without production-line workers and achieving 24/7 production. Such highly automated scenarios are not isolated cases, but a reminder to external investors that today’s Chinese manufacturing is no longer just a “low-wage production base,” but an industrial platform driven by machines, data, and supply chain coordination. For European firms, staying in China is often not because they want to “bet on China,” but because global competition requires them to participate in China’s supply chain.

This also has implications for other manufacturing hubs in Asia. ASEAN, India, and Mexico are all competing to absorb industrial spillovers from China, but what they are more likely to capture are “dispersed individual links,” rather than fully replacing China’s industrial system. The reason is simple: manufacturing relocation is not determined only by tariffs and wages, but also by the completeness of supporting infrastructure, engineer density, logistics efficiency, and supplier response speed. China’s systemic advantages in these areas remain difficult to replicate in the short term.

Therefore, the choices European companies are making in China today actually reflect a broader business trend across Asia: global firms are shifting from a simple pursuit of “security” toward a pursuit of “resilience and efficiency” at the same time. This means future supply chains will neither return to the highly concentrated structure of the globalization era, nor fully decouple; instead, they are more likely to form a multi-layered regional network with China as the high-efficiency manufacturing core, supplemented by ASEAN and South Asia as supporting nodes.

For European companies, the real question is no longer “whether to manufacture in China,” but “which products must remain in China, which processes can be moved elsewhere, and how to maintain a balance between cost and delivery across the two objectives.” And for the broader Asian industrial landscape, this adjustment will continue to drive capital flows within the region, technology diffusion, and the reshaping of manufacturing specialization. China may not be the only growth center, but for a considerable period of time, it will still be the hardest link to bypass in the global manufacturing chain.