"Build Factories Outside China" Chinese Companies Pressured by European Clients

Aftermath of COVID Lockdowns and US-China Tensions... "Resilience-Centered Strategy"

Global companies, whose operations were hampered by China's stringent COVID-19 lockdown measures, are reportedly pressuring Chinese parts manufacturers to establish overseas factories in order to reduce their dependence on China. This pressure seems to be growing particularly in Europe, where major automobile manufacturers are based.

According to Bloomberg and other sources on the 11th, a manager at an electric vehicle charging parts manufacturer based in Jiangsu Province, China, was recently asked by a European client visiting the headquarters about plans to establish overseas factories. The client’s first question upon seeing the manager was driven by growing concerns amid escalating tensions between China and the West.

[Image source=EPA Yonhap News]

The manager, Wang (who requested anonymity), said that during the trip from the airport to the factory with client representatives, they decided to visit Vietnam and Thailand together, considering the establishment of overseas factories. Wang stated, "Honestly, I don't even want to board a plane, but there is no choice. It's either relocate or lose the business."

Bloomberg reported that Chinese parts suppliers are facing similar pressures. Major clients, such as European automobile manufacturers, have contracts with Chinese companies to produce various components including cooling parts and brake systems, and are now suggesting that these Chinese companies build factories in countries outside China, such as Vietnam or Indonesia.

The global movement to move away from China has been ongoing since last year. When the Xi Jinping administration implemented prolonged and strict lockdown measures during the COVID-19 pandemic, the "world's factory," China, effectively closed its doors, causing supply chain disruptions for companies. The long-lasting and worsening trade conflicts between the U.S. and China have also dealt a blow. Bloomberg explained that European automobile manufacturers are making such proposals to avoid immediate risks related to China while seeking ways to maintain long-standing cooperative relationships.

Ben Simpendorfer, a partner at consulting firm Oliver Wyman, explained, "Companies are shifting from cost-centered strategies to resilience-centered strategies. Resilience means having additional factories in other countries around the world." He added that the pandemic and trade conflicts have highlighted vulnerabilities in global supply chains.

Sunrise Technologies, a Chinese company that already supplies electronic components to Germany's Robert Bosch and Japan's Panasonic, has established a factory for producing set-top boxes for overseas consumer markets. Sunrise stated that their overseas expansion was in response to rapidly changing international circumstances. They also explained, "What has happened in consumer electronics is expected to happen in the automotive supply chain as well. The transition to the automotive industry is just a matter of time," citing supply chain issues in major automotive manufacturing hubs caused by the COVID-19 pandemic and lockdowns.

Mins Group, based in Ningbo City, China, which manufactures vehicle body parts, established a joint venture in February last year with French automobile manufacturer Renault in Ruitz, France, to produce battery boxes. Mins stated in February, "Recently, we have all witnessed the trend of deglobalization," and that they will respond well to customer demands, trade conflicts, and geopolitical risks.

According to a survey conducted last month by the American Chamber of Commerce in China, China fell out of the top three countries for major U.S. corporate investments for the first time in 25 years. Recently, Airbus decided to make additional investments in its Tianjin factory in China, and Tesla announced plans to build a large-scale electric energy storage facility called "Megapack" in Shanghai. However, many Chinese companies find it difficult to escape pressure from their clients to relocate overseas factories.

Countries mentioned as alternatives to China include India, Vietnam, and Southeast Asian nations such as Indonesia. In particular, Taiwan's Foxconn, the largest manufacturer of Apple iPhones, is shifting its production base from China to India by expanding the production share of its Indian factories. Major Southeast Asian countries, including India, are actively working to attract global companies pursuing de-China strategies by offering incentives.

This content was produced with the assistance of AI translation services.