China as an engine of global change

What’s new: Chinese competition is coming to a market near you and, in the process, redrawing the industrial map.

• China’s offshoring represents a generational structural shift, driven by deeper forces than a simple one-off.

CEOs and experts shared their views on why this time is different.

Many Chinese companies now, compared to eight years ago, have become more confident about themselves compared to Western firms. That confidence matters.

What’s happening in the US — the policies coming out of Washington, DC — is, on balance, helping Chinese firms feel more comfortable that this is a good time to go out.

There’s a push factor: major overcapacity and relentless competition inside China, which is driving down profit margins and increasing motivation to expand abroad.

Why it matters: Chinese firms are moving from suppliers to partners or fierce competitors — and this is changing how MNCs operate and nations regulate.

• As Chinese firms move upstream and expand globally, MNCs will need to rethink how they manage partnerships, supply chains, technology, and standards.

State of play: Europe demonstrates China’s preference for incremental entry— acquiring niche firms that unlock technical know-how or local certifications — often under the radar.

Chinese firms are quietly buying up small and mid-sized European suppliers across Italy, Spain, Austria, and Germany. These are modest but strategically meaningful transactions. Chinese players gain a foothold inside Europe’s value and supply chains.

Larger deals are emerging too, driven by Europe’s growing pool of distressed assets — many weakened by Chinese competition itself. This isn’t necessarily the result of a grand industrial strategy, but a byproduct. In some cases, MNCs welcome these tie-ups, impressed by Chinese innovation. But they must face investment screenings first.

ICYMI: In case you missed it, Hungary is worth watching. It receives the largest share of Chinese FDI in Europe.

Chinese automotive and battery firms, including BYD and CATL, are moving production to Europe — mainly Hungary — drawn by pro-investment policies and government backing.

Investments are clustering on Europe’s fringes — Hungary, Greece. If this continues, Hungary could shift from Europe’s “bad boy” to a manufacturing powerhouse with China inside.

The play: MNCs that partner with Chinese firms as they establish their presence abroad can stay ahead of the curve.

• Many Chinese firms, whether private or state-owned, will struggle abroad as they face fresh challenges. Some won’t succeed — and some will benefit from partnerships.

There could be more cooperation between Chinese and European companies, because, frankly, most Chinese firms are poorly equipped to scale in Europe. They lack distribution networks, an understanding of the service levels expected in Europe, and proper quality assurance — not quality itself, but the assurance processes. They’re also missing local content. These gaps will close with greenfield investment, but only if the broader framework conditions in Europe stabilise.

The twist. Roles have reversed. Chinese firms entering new markets now face the same challenges MNCs once faced in China.

The irony is striking: European firms may play the same role for Chinese companies in Europe that Chinese partners once played for them in China — offering market access, distribution networks, and credibility through voluntary joint ventures or even full mergers. The balance of who needs whom is shifting.

Chinese firms are utilising Europe to build capacity. This is the mirror image of how MNCs once entered China.

• Buying SMEs for certifications and processes.
• Building service, distribution, and QA capabilities that they don’t yet have.
• Starting in fringe markets to learn in a lower-risk setting.

Yes, but while there are parallels between how Chinese and Western firms globalise, there are also striking differences — which could trigger further disruptions.

Operational blind spots: Chinese firms’ domestic instincts do not always translate abroad.

In China, companies practise stakeholder management every day. When times are tough, they don’t downsize. Yet once they cross the border, that instinct seems to vanish.

One advisor points out that private firms and even provincial SOEs are more commercially than ideologically driven; however, many Chinese leaders have never navigated a Western-style recession. Their default response is expansion, not restructuring.

Their instinctive response is to focus on top-line growth — investing, expanding, and chasing new markets — rather than cutting costs. It’s not ideology; it’s muscle memory.

Adaptation takes time, another CEO reminded.

When Japanese giants first expanded overseas, they struggled with labour, tax, and environmental standards. Within 10–15 years, they learned. Chinese firms will need the same period.

Geopolitical blind spots: China’s commercial ties with Russia and its use of export licensing (such as rare earths) keep Europe wary and could harden screening regimes if a line is crossed.

State-owned enterprises are cautious not to appear supportive of Russia, but Chinese banks remain under close scrutiny.

Europe’s dependencies have become chokepoints. The EU has realised how exposed it is in critical sectors and how easily these can be weaponised.

Dependencies are becoming liabilities. But China cannot replace the US in Europe’s strategic calculus.

The US is the main destination for EU FDI — more than a quarter of total investment. China accounts for just 2.5%. Between 30% and 50% of Europe’s imported defence systems are sourced from the US.

Big picture: Trade talks between China and the EU have narrowed. Comprehensive China–EU agreements are off the table.

• The future of trade talks with China is likely to involve sectoral carve-outs. Big deals are too fraught.

There are intense sector-level discussions — EVs, medical devices, agricultural products, energy equipment. Each is at a different stage, but EV tariffs dominate the agenda.

Reviving the CAI is a non-starter. Conditions have changed too much.

A lot is at stake. If Brussels fails to secure deals, Chinese investments will go elsewhere.

Consensus takes time — and that pace doesn’t suit Chinese companies in survival mode. Europe remains a medium-term priority for China but faced with uncertainty, they will invest in Morocco, Saudi Arabia, or the UAE.

What’s next? China’s priorities lie to the south, not the west.

Chinese firms are accelerating investment across the Global South — markets with higher growth, fewer political obstacles, and generally more favourable public opinion.

The focus is on the Global South — ASEAN, Central Asia, South and Russia, which remains a major and still-growing outlet for Chinese firms. The pattern holds across sectors: consumer electronics, industrial machinery, autos, and chemicals.

In opinion surveys, more than 50% of Global South respondents hold favourable views of China, while in Europe, the US, and their allies, it sits below 40%.

These markets resemble China’s own conditions, but none are easy. India remains particularly challenging.

Europe is no longer the priority. Some Chinese clients say, “We need to look at India.” That’s a bold — or desperate — statement, because if Europe is complicated, India is on another level entirely for a Chinese company.

Brazil could be a bellwether for how other emerging markets balance ties with China while protecting their own industries.

Brazil used to be a world champion at protectionism. It’ll be interesting to see whether Brazil protects its champions — or allows China to keep exporting.

The bottom line: China’s status as a global force in industrial supply chains will continue to grow — and so will dependencies. The China team and HQ must closely monitor this change — and consider how to adapt accordingly.

• The economic realities ahead will be driven as much by China’s low-cost innovation as by the defensive measures other countries take in response.

Of course, there are still plenty of stumbling blocks along the way. The question is how contagious trade restrictions and non-tariff barriers will become. Will we see more countries decide to protect their own industries?

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Thank you for your time.

The IMA Asia Bulletin is a curated mix of brief, timely insights from our forums or monthly catch-ups with IMA members. Our sessions are convened under the Chatham House Rule, and quotes are edited for brevity and clarity.