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

BEIJING — Supply chain diversification away from China is about to move from just talk to action.

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

“Dependencies are being discussed in much more detail than they were before … Are we even sure Europe can manufacture toothpaste without ingredients sourced in China?” Eskelund said.

Reflecting continued global demand, China’s trade surplus for the year through November reached a record $1 trillion, according to official figures released Monday. That means the country exported far more than it imported, despite U.S. tariffs.

“The higher that production goes up, the higher the risk that countries will begin to react,” Eskelund said. He pointed out China faced a record high of 198 World Trade Organization trade investigations last year, well over half of which were from developing countries.

Other figures cited by the EU Chamber in its report Wednesday showed that China’s share in containers shipped globally was creeping up — at 37% for the first three quarters of this year, up from 36% at the end of 2024 and 31.7% before the pandemic in 2019.

A weak Chinese currency and domestic overproduction contributed to that growth, the chamber said. It recommended members “eliminate single-source dependencies” on the U.S. and China, and called on EU policymakers to “accelerate plans to identify and eliminate critical dependencies.”

Investors have heard this conversation before.

During Covid-19, businesses started to realize how reliant they were on products and parts from China, when stringent lockdowns to control the virus disrupted production. The stakes for businesses and their home base governments are far higher now compared to the pandemic, Eskelund said.

“That’s actually a big shift, from you’re concerned primarily about whether you have a supply chain that can physically deliver the product, and then whether your supply chain is dependent on a certain government position,” he said.

As tensions between the U.S. and Beijing rose over tariffs and trade barriers this year, Beijing ramped up export controls, including on critical rare earths, bringing into light the global dependency on Chinese production.

A survey by the American Chamber of Commerce in Shanghai earlier this year found that a record share of respondents — 47% — had diverted investments planned for China.

At the start of the year, the EU Chamber’s member survey found that business sentiment was at a record low, with a record 73% of respondents saying doing business in the Asian country had become more difficult.

Still, more than a quarter of the respondents said they were increasing onshoring in China, largely to meet Beijing’s localization requirements, with just 10% looking at supply chains outside China — that is changing now.

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

It’s less clear whether diversification means reshoring.

“The reality is nobody is reshoring it’s all friendshoring,” said Cameron Johnson, Shanghai-based senior partner at 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 out their entire supply chain, rather than just focusing on specific parts. Chinese firms might be the ones partnering with those overseas factories, or setting them up.

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

Eskelund pointed out that car companies from different countries, increasingly including China, have taken this approach. “Here Chinese companies might be a little ahead of their own government,” he said.