China's shrinking export routes spur a push for localization in Europe, tightening its grip on the auto supply chain

[Financial News]  

The Financial Times (FT) also reported on the 11th local time that Chinese auto parts makers are quietly taking control of Europe's auto supply chain. As export routes narrow, they are moving to localize their operations in Europe.
According to consulting firm Rhodium, Chinese companies have invested in more than 130 European auto parts makers since the mid-2000s. Investment has been concentrated in Germany and France, the region's auto manufacturing hubs.
Sébastien Frendo, CEO of Paris-based consulting firm Do Well Do Good, said, "It may not be the case yet, but it would not be surprising if two or three of the top 10 suppliers were Chinese companies in the near future."

Backed by the government's "go global" strategy, Chinese companies acquired European suppliers. Beijing has long encouraged domestic firms to use overseas investment to absorb technology and sales networks from foreign rivals.
According to Rhodium, the peak of the acquisition boom came in the mid-2010s, when Geely Automobile acquired Sweden's Volvo Cars for 1.8 billion euros, or about 2.9 trillion won.
China then began tightening rules on overseas investment, and trade barriers also rose. As a result, small mergers and acquisitions worth less than 100 million euros dominated over the past decade.
That was the catch. Small acquisitions stayed out of sight of European regulators, allowing Chinese companies to quietly expand their influence in Europe's auto supply chain below the surface.

Pali Mesko, CEO of corporate intelligence provider Sayari, said the true scale of Chinese companies' ownership is larger than is publicly known.
In Germany, he explained, "About 80% of Chinese-controlled auto-related assets are held through at least one offshore intermediary entity, or involve a holding company registered in Germany under a local name."
European policymakers are also worried about China's encroachment on the auto supply chain. One European Union (EU) official called China's threat to Europe's auto industry "a decade-long challenge Europe faces."
The official said Chinese companies have used four methods to expand in the European market: increasing exports, acquiring stakes in local firms, setting up joint ventures, and building factories inside the EU and in nearby countries such as the Republic of Serbia, Türkiye, and Morocco.

However, parts makers short on cash and automakers that urgently need to cut costs and innovate are welcoming Chinese capital and technology as they move into Europe's supply chain.
Parts makers can avoid bankruptcy with help from Chinese companies, while automakers can secure price competitiveness thanks to the low-margin, high-volume strategy of Chinese suppliers.
Despite regulators' concerns, the industry's dependence on Chinese capital and technology is deepening, and Chinese parts makers' grip on Europe's supply chain is likely to accelerate.


[email protected] Song Kyung-jae Reporter