After strict initial measures, China’s economy has largely stayed open during the pandemic, which is helping the country to attract European investors. (Photo by Getty Images)

European companies are seeking to increase their exposure in China and move their supply chains onshore in the country, according to a report from the EU Chamber of Commerce in China published in June 2021.

The European Business in China Business Confidence Survey 2021 finds that 59% of European companies are considering expanding their China operations in 2021, up from 51% the year before.

What is more, the report reveals that manufacturers are looking to onshore their supply chains in China, five times as many as are offshoring.

This move towards investing more in China comes as “European companies in China found themselves in a resurgent market that was able to get production back online, and are building resilience in China to secure their position in the market”, according to the report.

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However, the eagerness of European companies to further invest in China after the Covid-19 pandemic comes contrary to previous expectations that investors were looking to reshore or nearshore their global operations. It was widely reported that investors were considering relocating the supply chain side of their businesses closer to their headquarters as a result of the pandemic, or to follow a China plus one model, in a bid to waterproof their investments from future disruptive events that may cause global just-in-time supply chains to collapse.

Nevertheless, the report finds that only 9% of the European companies are considering moving their current or planned investments out of China, which is the lowest level on record.

The rest of Asia-Pacific, Europe and the Middle East are among the most targeted markets for European companies looking to shift their investments away from China, according to the report.

European companies both contributed to and benefitted from China’s strong and speedy economic recovery, said Denis Depoux, global managing director of consultancy Roland Berger, in a press release. “If given the right opportunities, [European companies] are ready to deepen their positions here, and [they] have a wealth of technology and expertise to drive not only growth, but also help with China’s decarbonisation goals and its industrial upgrade,” he added.

Prioritising decarbonisation is key for European companies, as 15% of respondents said in the report that they are already or nearly carbon neutral, and 30% are taking measures to become so.

In fact, the report states that “many European companies universally apply high environmental protection standards across their global operations. With China announcing its intention to be carbon neutral by 2060, it will become increasingly important to leverage all of the expertise that it can. This should include bringing European companies to the table to discuss and become involved in formulating national decarbonisation strategies to help China achieve its ambitious goal".

Increasing operations in China has risen significantly on the agenda of many European companies following the Covid-19 pandemic, given that 51% of companies have reported that their earnings before interest and tax margins in China were higher than their worldwide average during the pandemic. However, despite the eagerness to increase exposure in China, investors are still facing some key concerns such as the increasingly politicised business environment, decoupling and tech divergence.