Multinationals Plan Strategies to Mitigate China Risk, ECB Survey Reveals, According to Reuters

FRANKFURT (Reuters) – A recent survey conducted by the European Central Bank reveals that over 40% of multinational companies are contemplating relocating production to countries that are perceived as more politically stable in the coming years. The primary concern driving this potential shift is the risk associated with operations in China.

In light of disruptions caused by the COVID-19 pandemic and the ongoing conflict in Ukraine, firms have increasingly explored the idea of changing their production locations. Nonetheless, empirical evidence of widespread relocations has been limited.

The ECB’s survey included 65 large multinational firms, and it found that 49% of respondents were considering "near-shoring," or moving production closer to their customer bases. Additionally, 42% of firms expressed interest in "friend-shoring," referring to relocating operations to more favorable political environments.

Notably, two-thirds of respondents identified China as a country that poses a significant risk to their supply chains. A substantial number of firms reported sourcing essential materials from a select few nations, with nearly all acknowledging heightened risks associated with these supplies.

A large majority pointed to China as a key risk factor, with all acknowledging this situation as a critical concern. While near-shoring has been a trend in recent years, the concept of friend-shoring is emerging, with only 11% of firms indicating they had implemented such a strategy in the past five years.

The ongoing shifts in corporate production strategies are likely to negatively affect the European Union. The number of firms planning to relocate production out of the EU exceeds those intending to move in, which could lead to significant employment impacts. Furthermore, nearly half of the companies surveyed indicated they anticipate these changes will lead to increased prices, potentially exacerbating inflation.