Executives have noted that customers in Europe are looking to cut down their reliance on Chinese products, in line with the European Union heightening its examination of goods from the top global exporter. The European Union has instigated investigations into subsidies provided to manufacturing in China by their government, and the European Commission may soon reveal additional tariffs on imported Chinese electric vehicles.
European businesses are aiming to decrease their overreliance on specific areas where they feel their dependence on Chinese imports has become too much, contrary to American companies that have proactively sourced new suppliers following Washington’s enforcement of a strict tariff regime and other restrictions.
Richard Laub, CEO of Dragon Sourcing in Belgium, explained that businesses are interested in reducing their reliance on China, a trend that he has seen the EU follow in recent times. Laub suggested that this shift was encouraged by the US, but European countries had increased their own search for alternatives since the pandemic ended. He also notes that there is a high level of dependence on Chinese goods in Europe, specifically within the non-food retail sector, which covers everything from clothing and appliances to electronics and toys. He estimates that Chinese imports account for between 80-90% of purchases for some of the largest groups in Europe.
William Fung, deputy chair of the Fung Group which owns one of the world’s most significant sourcing groups, Li & Fung, expressed that while most European countries may not have any issues dealing with China, they are increasingly cognisant that any impact on China might also affect them. Consequently, they are considering more diversification away from China. This is part of a broader global effort, with Fung sharing that some customers wish to reduce their reliance on China to as little as 30%, or even completely.
Naveen Jha, a businessman running a clothing textile sourcing company in Changzhou, East China, has noticed a shift among European businesses who are now increasingly opting for garment supply from India, Bangladesh, and Vietnam. Despite facing extended delivery times and heightened costs, these firms appear to willingly accept the trade-off due to perceived risks associated with dealing with Chinese suppliers.
While the economical pricing of Chinese commodities has traditionally worked in the favour of European businesses, particularly with the shift of US clientele seeking alternatives, Frederic Neumann, HSBC’s chief Asia economist, suggests a changing landscape. He outlines that companies involved in the chemical, pharmaceutical and electronics sectors are seeking to decrease their reliance on China.
However, industry experts advise that this pursuit of risk mitigation isn’t projected to adversely impact China’s export market significantly. They highlight the rise in consignments to Chinese-established factories in alternative offshore production centres such as Vietnam and Mexico and the growing competitiveness of domestically manufactured products.
These experts further suggest that the desirability of the Chinese manufacturing sector presents a challenge to those attempting to locate new providers. It appears particularly difficult to find substitutes for more complex products outside China.
Vincent Clerc, the CEO of Maersk, speaking at a HSBC forum in Hong Kong in April, described the situation like a game of musical chairs, stating that the destination of Chinese goods is changing, but the production volume, particularly for items like shoes, remains largely the same as it was a few years prior.