Supply chain diversification away from China is progressing from talks to action, EU chamber says

BEIJING — The supply chain shift away from China is about to move from just talk to action.

Jens Eskelund, president of the European Union Chamber of Commerce in China, told reporters on Tuesday ahead of the release of a report on supply chain risks and as businesses look ahead to the new year after a tumultuous 2025.

“Addictions are being discussed in much more detail than before… Are we sure Europe can produce toothpaste without ingredients sourced from China?” Eskelund said.

Reflecting ongoing global demand, China’s trade surplus in the year to November reached a record $1 trillion. official figures It was published on Monday. This means that, despite U.S. tariffs, the country exports much more than it imports.

“The more production increases, the higher the risk that countries will start to react,” Eskelund said. pointed to china faced a record high Last year the World Trade Organization had 198 trade investigations, more than half of which were from developing countries.

Other figures cited in the report published by the EU Chamber on Wednesday showed that China’s share of containers shipped globally rose to 37% in the first three quarters of this year, from 36% at the end of 2024 and 31.7% before the 2019 pandemic.

The chamber stated that the weak Chinese currency and domestic overproduction contributed to this growth. He advised members to “eliminate single-source dependencies” on the United States and China and called on EU policymakers to “accelerate plans to identify and eliminate critical dependencies.”

Investors have heard this talk before.

During Covid-19, businesses began to realize how dependent they were on products and parts from China, as strict quarantines to control the virus disrupted production. Eskelund said the risks for businesses and their parent governments are much higher now than they were during the pandemic.

“This is actually a big shift; first of all, you’re concerned with whether you have a supply chain that can physically deliver the product, and then whether your supply chain is tied to a particular government position,” he said.

As tensions between the United States and Beijing have risen this year over tariffs and trade barriers, Beijing has stepped up export controls, including on critical rare earths, and brought to light global dependence on Chinese production.

A survey conducted by the American Chamber of Commerce in Shanghai earlier this year found that a record number of respondents (47%) were directing planned investments towards China.

At the beginning of the year, the EU Chamber’s member survey revealed that business sentiment was at a record low; 73% of survey respondents said it had become more difficult to do business in this Asian country.

Yet more than a quarter of those surveyed said they were increasing stockpiling in China, largely to meet Beijing’s localization requirements, while just 10% were looking at supply chains outside China; This situation is now changing.

In November, the chamber conducted a brief survey of 131 members about the impact of China’s export controls and found that nearly a third of respondents planned to look outside China for sourcing or capacity building outside the country.

It is less clear whether diversification means renewed support.

“The reality is that no one is re-supporting that this is pure fraternization,” said Cameron Johnson, senior partner at Shanghai-based consulting firm Tidalwave Solutions. “They’re going to Mexico, they’re going to Southeast Asia.”

“You should expect Chinese supply chains to become more dominant,” he said, adding that companies will try to better map their entire supply chains rather than just focusing on certain parts. It may be Chinese companies that establish or establish partnerships with these overseas factories.

The EU trade body said nearly half of its members reported that their China-based suppliers were now shifting production to other markets.

Eskelund pointed out that automobile companies in different countries, including China, have adopted this approach. “Here Chinese companies may be a little ahead of their own government,” he said.