A new report recommends European companies avoid an overreliance on China or the US in their supply chains, as companies find themselves squeezed between Beijing’s preferential policies for local companies and Washington’s trade volatility.
The European Union Chamber of Commerce in China advised companies to “eliminate single-source dependencies on both China and the United States where possible” in its “Dealing with Supply Chain Dependencies” report released on Wednesday.
“We are probably only seeing the very tip of the iceberg when it comes to understanding dependencies,” the chamber’s president, Jens Eskelund, said at an earlier media briefing, at which he noted European industries’ deep reliance on Chinese inputs.
“I’m not even sure that Europe would be able to make toothpaste without China.”
While the strength of China’s industrial clusters means many global companies remain reliant on its supply chains to stay competitive, the report said the fallout from recent geopolitical shocks had underscored the urgent need to diversify away from single-country dependencies.
That scrutiny extends to the US, the report showed, with the Trump administration’s unpredictable use of tariffs and flip-flopping on trade deals leading some member companies interviewed by the chamber to view China as being comparatively more reliable.
But overall confidence in the Chinese market had declined, the report said, with unequal treatment compared to local competitors cited as the top concern among European companies in China.
“What we have seen now is that the business environment in China has a fairly direct impact on the rest of the world, simply because of the size that China has today,” Eskelund said at a closed-door media briefing on Monday.
Industrial policies like “Made in China 2025” – a self-reliance drive that aims to transform the country into a global hi-tech manufacturing hub – have often given preferential treatment to domestic firms.
The State Council, China’s cabinet, has announced that goods produced in China by state-owned, private or foreign companies will receive a 20 per cent price preference in government procurement starting next year. But while the authorities have clarified standards for what constitutes a locally made product and prohibited discrimination against foreign companies meeting localisation requirements, many foreign businesses remain sceptical.
The report said European companies were wary of long-standing informal discrimination in public procurement and the risk that the definition of a locally made product could change after they invested in Chinese supply chains.
The chamber also urged Beijing to tackle the macroeconomic conditions fuelling trade imbalances, particularly exchange rates.
Eskelund said some economists had estimated the yuan was undervalued by over 40 per cent against the euro, citing a report issued by the German Economic Institute in July.
He argued that allowing the yuan to appreciate would be “in China’s own interest”, as it would boost domestic purchasing power and reduce international trade friction.
China’s trade surplus has surpassed US$1 trillion for the first time this year, according to data released this week, even as shipments to the US declined amid a bilateral tariff war.
Following a visit to China last week, French President Emmanuel Macron warned Beijing that Europe would be forced to retaliate with “strong measures” against Chinese goods – including punitive tariffs modelled after US policy – if a trade imbalance between the two sides remained unaddressed next year.
In a story published on Sunday, the business newspaper Les Echos quoted Macron as saying that China was “effectively killing their own customers” by running unsustainable surpluses while curbing imports.
“I told them that if they do not react, we Europeans will be forced, in the next several months, to take strong measures and to de-cooperate, following the example of the United States – for instance, by imposing tariffs on Chinese products,” he said.
Growing trade imbalances, combined with Beijing’s previous moves to restrict exports of rare earths – measures that were paused following high-level talks with the US – and disputes over Dutch semiconductor company Nexperia, have deepened European anxiety over supply chain security.
In response, Brussels adopted a plan last week to diversify away from the bloc’s dependence on China for critical raw materials and strengthen supply chains.
“The whole idea of free trade falls apart if there’s not a benefit for both trade partners,” Eskelund said. “And I really think that this is a big challenge right now.” -- SOUTH CHINA MORNING POST
