Asian firms shift investment towards Europe in supply chain ‘realignment’, ING says
News Summary
Asian companies, particularly those in China, are undergoing a structural transformation in their supply chains, redirecting investments towards Europe amid a decoupling from the US, according to ING. US tariffs are a significant cost component for manufacturers, driving the need for supply chain diversification. Chinese foreign direct investment (FDI) in the EU and UK surged by 47% to €10 billion in 2024, marking the first substantial rebound since 2016. This increased the two markets’ share of total Chinese FDI to 19.1%, while the US attracted less than €2 billion. Electric vehicle (EV) projects led this investment shift in Europe, accounting for €4.9 billion or 83% of all Chinese greenfield FDI last year. Notable examples include Contemporary Amperex Technology (CATL)'s €7.3 billion factory in Hungary and BYD's new factories in Hungary and Turkey, all slated to begin production by next year.
Background
Since 2018, against a backdrop of escalating US-China trade tensions and technological competition, the US Trump administration has imposed significant tariffs on Chinese goods. These tariffs were aimed at reducing US reliance on Chinese products and encouraging manufacturing reshoring. Following President Trump's re-election in 2024, his administration has continued negotiations with trade partners and maintained its tariff policies towards Chinese goods. This has prompted Asian, particularly Chinese, companies to actively seek supply chain diversification to mitigate operational costs and geopolitical risks. Europe is emerging as a key alternative investment destination.
In-Depth AI Insights
Why are Asian, particularly Chinese, firms shifting investment to Europe, and is it merely about tariff circumvention? - Ostensibly, circumventing US tariffs and de-risking from decoupling are primary drivers. By establishing manufacturing bases in Europe, Chinese companies can adopt a “produce locally, sell locally” model, bypassing US import restrictions and potential punitive tariffs on China-made goods. This allows products to enter European and other markets as “Made in Europe.” - However, a deeper strategic motive may lie in the long-term reshaping of global supply chains. Europe is not only a vast consumer market but also a leader in advanced manufacturing, R&D, and green energy transition. Investing in Europe, especially greenfield investments, not only addresses current trade needs but also allows Chinese firms to integrate more deeply into higher-value global industrial chains, acquiring advanced technology and enhancing brand value. - This also represents a further deepening of China’s “Belt and Road” initiative in Europe, solidifying geopolitical influence through economic cooperation. What are Europe's strategic considerations in accepting Chinese investment, and what are the potential long-term implications? - For Europe, attracting Chinese investment, particularly in emerging industries like EVs, helps create jobs, stimulate economic growth, and accelerate its green transition goals. Europe needs diversification and localization of its EV supply chain to reduce reliance on a few suppliers. - Long-term implications could include the risk of “Sinicization” of European industries, where critical technologies and production capacities might gradually fall under Chinese capital control. Concurrently, this could lead to future trade friction between Europe and the US, as Europe might become a “stepping stone” for Chinese products to circumvent US tariffs, thereby complicating transatlantic trade relations. - Furthermore, internal European scrutiny of Chinese investments will likely intensify, especially in critical infrastructure and high-tech sectors, to balance economic benefits with national security considerations. How should investors evaluate the impact of this supply chain “realignment” on relevant industries and markets? - EV and Battery Sector: European EV manufacturing will benefit from the inflow of Chinese capital and technology, intensifying competition, but potentially leading to more cost-effective products for consumers. The expansion of Chinese giants like CATL and BYD in Europe will positively impact their global market share and profitability. - Logistics and Infrastructure: As manufacturing bases shift to Europe, European ports, logistics networks, and industrial real estate will see new investment and growth opportunities. - Raw Materials and Energy: Local European raw material suppliers and energy service providers will benefit from increased industrial demand. However, global competition for critical raw materials (e.g., lithium, cobalt) will also intensify. - Geopolitical Risks: Investors must closely monitor the evolution of the US-China-Europe trilateral trade relationship and any policy changes that could affect supply chain stability and investment returns. Political risk premiums might influence the valuation of related European assets in the medium to long term.