European businesses operating in China are grappling with significant increases in expenses and a growing sense of uncertainty due to China's export restrictions. A recent survey indicates that some companies could incur additional costs amounting to hundreds of millions of dollars.
Findings released by the European Union Chamber of Commerce in China revealed that one company anticipates facing over €250 million (approximately $290 million) in extra costs. Another business projected that the restrictions would add costs equivalent to about 20% of its worldwide earnings in 2025. The survey was conducted between November 6 and November 24.
The survey results highlight the substantial reliance of European companies on China for crucial materials and technology, and the disruptive impact when this supply chain is interrupted. Approximately one-third of European businesses with operations in China are now planning to seek suppliers in other countries as a direct consequence of these policies.
Retaliation Amidst Trade War Restrictions
China implemented these export controls as a retaliatory measure against tariffs and other limitations imposed by the United States on Chinese goods during their trade dispute. These restrictions specifically target vital resources such as rare earths, which are difficult to source from alternative locations.
Recently, China temporarily suspended some broader regulations that would have prohibited exports containing even minor quantities of specific rare earth elements. This pause occurred as part of an agreement aimed at de-escalating tensions with the US. However, both nations are still in the process of finalizing details for general licenses that would facilitate smoother trade, having missed their initial target to conclude these discussions before Thanksgiving.
Stefan Bernhart, Vice President of the European Chamber, emphasized the critical need for a swift implementation of a general licensing system. "Introducing a general licensing mechanism in the near future would provide much-needed stability and predictability, and could put a floor under the deterioration of business confidence caused by these export controls," he stated.
China's export controls extend beyond rare earths and essential minerals, also encompassing limitations on the cross-border transfer of sensitive information and restrictions on the export of certain types of computer chips.
Germany is the largest importer of rare-earth magnets from China. While US shipments saw a rebound in October, reaching their highest level since January, Germany's imports decreased for the second consecutive month after peaking in August, according to the latest Chinese customs records.
The survey did not specify the intended destinations or methods for companies looking to diversify their sourcing away from China, a challenge given China's dominant position in the mining and processing of rare earths.
Concerns about data security were also raised, with approximately 11% of survey respondents expressing worries about potentially having to disclose confidential business information when applying for licenses.
The report noted that the European Commission provides a website for companies to request export licenses, track customs clearance, and report encountered issues. However, only 18 companies indicated they had utilized this resource.
A total of 131 chamber members participated in the survey, with 75 reporting that their businesses were affected by China's export controls.
Automakers Seek Alternatives to Chinese Components
European automotive companies are actively exploring strategies to reduce their reliance on components that incorporate Chinese-made parts. This proactive approach is driven by concerns over escalating political conflicts, including issues related to chipmaker Nexperia and China's restrictions on rare earth exports.
Several major car manufacturers are reportedly urging their primary suppliers to identify sustainable alternatives for Chinese semiconductors, according to sources familiar with the matter. Matthias Zink, head of CLEPA, Europe's leading automotive suppliers association, indicated that the industry is contemplating more significant adjustments to its procurement practices to navigate evolving geopolitical landscapes.
"We had some indications already, questions like, 'how can you supply me without this dependency on China?'" Zink, who also leads the powertrain and chassis division at Schaeffler AG, commented.
These developments follow a sudden disruption in supply experienced by the Chinese-owned company Nexperia in October. The situation was exacerbated when China halted exports of critical parts from Nexperia's manufacturing facilities in China after the Netherlands took control of the company's Dutch operations.