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European buyers are trying to reduce their reliance on China and the EU is stepping up scrutiny of products from the world’s top exporter, procurement executives said.
Brussels has launched an investigation into Chinese government subsidies to manufacturing, and the European Commission is expected to announce additional tariffs on Chinese electric vehicle imports soon.
“The big trend among companies right now is to reduce their reliance on China,” said Richard Laub, CEO of Belgium-based Dragon Sourcing, adding that while the U.S. has led the charge on decoupling, European countries have stepped up efforts to find alternatives since the pandemic ended. “We’re now seeing the EU catching up on that trend.”
But unlike U.S. companies, which are actively seeking new suppliers after the U.S. government imposed tough tariffs and other restrictions, European companies are focused on reducing their reliance on certain sectors that they see as overly reliant on Chinese products.
Laub said European clients, particularly those in non-food retail sectors that include everything from clothing and electrical appliances to home appliances and toys, were increasingly concerned about their exposure to China, estimating that for some of the continent’s largest groups, China accounted for 80-90 percent of procurement spend.
“Non-food [is] “There’s a lot of dependency on China. These types of companies in Europe are working hard to find alternatives,” he added.
“Many European countries may have no problem doing business with China, but if China is affected, they might as well think about how it will affect them,” said William Fong, vice chairman of Fong Group, which oversees Li & Fung, one of the world’s largest procurement groups by revenue.
“The result will be diversification away from China. China may be the sweet spot, but you can’t be sweet and wrong,” he added.
He added that it was part of a global effort. “Our clients are saying, William, do whatever you want, we just want you to have 30 percent market share outside of China, sometimes even more. Some even say we want you to get out of China completely,” he told reporters last month.
Naveen Jha, who runs a clothing and textile sourcing business in Changzhou in eastern China, said European companies were sourcing an increasing proportion of their garments from India, Bangladesh and Vietnam despite longer lead times and rising costs.
“Many buyers see risks in sourcing from China, so they prefer to go to India if they have some margin on price,” he said.
Frederic Neumann, HSBC’s chief Asia economist, said European companies were benefiting from the competitive prices of Chinese goods as U.S. buyers look elsewhere.
But still, some companies in the chemical, pharmaceutical and electronics industries are trying to reduce their reliance on China, he added.
Analysts warned that efforts to reduce risks are unlikely to deal too much of a blow to overall Chinese exports, pointing to increased shipments to Chinese-made factories in alternative overseas manufacturing locations such as Vietnam and Mexico, as well as the improving competitiveness of domestically produced goods.
He added that the allure of China’s manufacturing base complicates efforts to find new suppliers, with certain products – particularly complex ones – very difficult to source from abroad.
“So far, it seems like a game of musical chairs,” Maersk CEO Vincent Clarke said at an HSBC forum in Hong Kong in April. “Wherever Chinese products are going, it’s not the same place it was before. But the number of shoes being made in China is pretty much the same as it was a few years ago.”
