The European Union has spent the better part of two years building a policy framework intended to reduce European companies’ dependence on Chinese manufacturing. The strategy, which Brussels labeled “de-risking,” was designed to diversify supply chains, build strategic industrial capacity in Europe and allied countries, and reduce the economic leverage Beijing holds over European firms in sectors deemed strategically important. The results, based on new survey data and on-the-ground reporting from factories across China, tell a different story. According to CNBC, a significant majority of European companies operating in China are either maintaining their current footprint or actively expanding it, with 68 percent of respondents indicating they are staying put or growing their China operations.
The EU Chamber of Commerce in China, which conducts regular surveys of its membership across industries from automotive to pharmaceuticals to consumer goods, has found no evidence that de-risking is becoming an operational reality for most of its members. The gap between the policy goals articulated in Brussels and the supply chain decisions being made by European chief executives and operations managers reflects a set of economic realities that political rhetoric has not been able to override. Understanding why European companies are doubling down on China, even as their governments urge them to pull back, requires looking at what China’s manufacturing ecosystem actually offers and what the realistic alternatives are.
The Automation Transformation
The single most important factor keeping European companies in China is one that did not exist at the same scale just a few years ago: the depth and pace of China’s manufacturing automation. European executives and operations managers who have visited Chinese factories recently describe a transformation that has made the classic labor-cost argument almost beside the point. The relevant variable is no longer the wage differential between a Chinese assembly worker and a German or Romanian one. It is the difference between a fully automated Chinese production line and an equivalent line anywhere else in the world.
Chinese EV maker Nio operates a flagship factory with 941 industrial robots that can build multiple vehicle models simultaneously without workers on the production floor, running continuous shifts around the clock. That facility is representative of a broader industrial transformation underway across Chinese manufacturing, from electronics to precision components to specialty chemicals. The combination of Chinese government investment in automation technology, subsidized access to industrial robotics, and the accumulated expertise of factory operators who have been building and running complex production lines for decades has produced a manufacturing infrastructure that is, for many product categories, genuinely without parallel anywhere else.
European companies that evaluated alternative manufacturing locations in Vietnam, India, Mexico, and Eastern Europe report consistently that while those locations can compete on specific labor-intensive tasks, they cannot replicate the integrated production ecosystem that China has built. Supplier networks in China are deep, geographically concentrated, and capable of scaling with short notice. Lead times from component suppliers to final assembly are measured in hours in many Chinese industrial clusters, whereas equivalent operations in alternative locations often involve multi-week delays and higher logistics costs.
The Cost Structure That Will Not Go Away
Beyond automation, Chinese manufacturing retains structural cost advantages that are not easily replicated. Industrial energy prices in China remain lower than in most competing locations, partly because of state pricing policies and partly because of China’s enormous domestic energy production capacity. Raw material costs, particularly for metals, specialty chemicals, and the rare earth elements that are critical to advanced electronics manufacturing, are lower in China than in most alternative locations due to proximity to domestic reserves and the depth of China’s processing and refining infrastructure.
European companies also benefit from quarterly supplier negotiations that allow them to capture cost reductions as materials prices fluctuate, a practice enabled by the density of China’s supplier ecosystem. Selective state subsidies in key sectors, including new energy vehicles, semiconductors, and advanced manufacturing equipment, further tilt the cost comparison in China’s favor for companies operating in those industries.
The net result is that European companies looking for alternatives to China face a situation where the headline cost differentials have narrowed in some locations but the total delivered cost, accounting for logistics, lead times, supplier reliability, and capital investment required to build comparable infrastructure, remains decisively in China’s favor for most product categories. That calculation has proven resistant to political pressure, regulatory encouragement, and even direct government subsidies in some EU member states aimed at incentivizing reshoring or near-shoring.
Where De-Risking Is Actually Happening
The picture is not entirely static. De-risking is occurring in specific sectors where the strategic calculus genuinely overrides the cost calculus, and where European governments have been willing to commit the subsidies required to make alternatives viable. Semiconductor manufacturing is the clearest example: European governments, coordinated partly through the EU Chips Act, have backed major investments in semiconductor fabs in Germany, the Netherlands, and Ireland that will reduce European dependence on Asian chip supply over a multi-year horizon. Pharmaceutical active ingredient production, where supply chain concentration in China and India raised alarms during the pandemic era, has also seen meaningful investment in European production capacity.
But in the vast middle ground of industrial production: automotive components, consumer electronics assembly, specialty chemicals, precision machinery, and the enormous range of manufactured goods that flow into European products but do not sit in the top tier of strategic sensitivity, the pull of Chinese manufacturing economics has proven stronger than the push of political de-risking pressure.
The semiconductor dynamics in South Korea and beyond illustrate the broader pattern: in sectors where manufacturing capability is both strategically critical and sufficiently capital-intensive that governments are willing to fund alternatives, meaningful diversification is occurring. In sectors where the strategic sensitivity is lower or the alternative investment required is prohibitive, Chinese manufacturing dominance is deepening rather than eroding.
The Political Problem This Creates for Brussels
The divergence between EU de-risking policy and European corporate behavior creates a genuine political problem for Brussels. The European Commission’s strategic autonomy agenda, which underpins the de-risking push, is premised on the idea that European companies can and will shift their supply chains in response to a combination of regulatory incentives, subsidy programs, and pointed political messaging. The survey data from the EU Chamber of Commerce in China suggests that this premise is not holding in the way policymakers expected.
Part of the problem is that de-risking, as a policy goal, is inherently in tension with competitiveness. European companies that move production out of China typically incur higher costs, longer lead times, and quality risks during the transition period. In industries where margins are already thin and competition from Chinese producers is intensifying, absorbing those costs is not straightforward. Companies that move ahead of competitors risk putting themselves at a disadvantage if competitors stay in China and benefit from continued cost efficiencies.
The competitiveness dimension is particularly acute in industries where European companies are already under pressure from Chinese competitors. The automotive sector, where Chinese EV makers have moved aggressively into European markets with products that combine competitive pricing and improving quality, is the most visible example. European automakers who are simultaneously fighting for market share against Chinese EVs and trying to maintain cost-competitive supply chains face a nearly impossible tension if the policy environment pushes them to exit the manufacturing ecosystem that makes their Chinese competitors so formidable.
The European market’s response to broader economic pressures from the ongoing Iran war energy shock has reinforced the conservatism of corporate supply chain decisions. Companies that are already managing elevated energy costs and uncertain demand are not in a position to add the disruption and cost of major supply chain restructuring to their operational challenges.
What the Data Suggests About the Next Five Years
The picture that emerges from the current data is one of incremental adjustment rather than structural transformation in European supply chains. Strategic sectors are diversifying. Pharmaceutical and semiconductor production is moving, slowly and expensively, toward greater geographic distribution. In the broad industrial middle, the economic logic of Chinese manufacturing is proving durable and the alternatives are proving more difficult to build than de-risking advocates anticipated.
Over a longer horizon, the trajectory is less clear. Automation technology is advancing globally, not just in China, and as robotics costs continue to fall, the automation advantage that currently differentiates Chinese factories will become more replicable in other locations. Energy policy changes in Europe, particularly accelerating deployment of renewable energy, could reduce the cost gap in industrial electricity. Geopolitical developments, including a potential hardening of trade restrictions following the US-Iran conflict’s demonstration of how supply chain concentration creates strategic vulnerability, could shift the cost-benefit calculation that corporations are currently making.
For now, though, the data speaks clearly. European companies are not pulling back from China in any systematic way, and the reasons are rooted in economics rather than political sympathy for Beijing. The factories, the supplier networks, the automation infrastructure, and the cost structure that China has built over decades are not going to be replicated quickly or cheaply. Brussels can write policy documents and offer incentives, but European chief executives are making supply chain decisions based on the economics of what actually exists, and what actually exists in Chinese manufacturing remains formidably competitive.
