BME: Withdrawal from China is “not an issue” for many companies

According to a current sourcing analysis by the BME expert group on China, only a few German companies currently want to reduce their business activities in the People’s Republic. “The potential of the Chinese procurement market is far from being exhausted, despite the challenges we are currently facing,” emphasized Dr. Helena Melnikov, Managing Director of the Federal Association for Materials Management, Purchasing and Logistics (BME), on Tuesday in Eschborn. “The strategy of many companies is to diversify their China business through targeted engagement in neighboring Asian markets, rather than withdrawing from the market,” Melnikov continued.

(Eschborn) A current analysis by the BME expert group on China shows that the People’s Republic is still perceived as a reliable partner in the supply chain even after the end of the zero-Covid policy. “For most companies, a withdrawal from the Chinese market is currently not an issue,” said the experts.

The BME expert group on China, consisting of 46 medium-sized industrial companies, has closely examined potential markets in Southeast Asia that could gain importance as alternative locations. Based on a ranking determined by “political stability” and “market potential,” it becomes clear “how complex and resource-intensive the establishment of alternative supplier structures to the existing business in China is. Compared to a complete relocation of these activities to a new market and establishing them there, the short-term failure to meet profit targets still seems to be an acceptable scenario,” said Riccardo Kurto, head of the BME office in China, on Tuesday in Eschborn.

The BME expert group, whose members are responsible for an annual purchasing volume of around 11.0 billion euros, advocates for more realism regarding the China business of German companies. Structures and partnerships built over decades cannot be replaced in the short or medium term by suitable alternative production sites and procurement markets. Moreover, reshoring, and thus the relocation of production facilities back to Europe, is costly and often associated with significant price increases. If companies active in China were to decide to withdraw, the trust built up over decades with their business partners would be at stake.

China has a well-developed infrastructure and close supply chains. Foreign factories can purchase almost all intermediate products cheaply and quickly on-site. The domestic supplier network is classified by the BME expert group as China’s greatest location advantage. Kurto: “In fact, some western companies operating locally are not responding to global decoupling trends with withdrawal, but rather with stronger localization of their production in China.”

Melnikov finally pointed out that despite the difficult conditions caused by Corona, Asia’s largest economy was also Germany’s most important trading partner in 2022. According to preliminary results from Destatis, goods worth 298.2 billion euros were traded between Germany and China alone last year. Thus, the People’s Republic was Germany’s most important trading partner for the seventh consecutive year in 2022. Furthermore, China is considered one of the world’s strongest supply and sales markets.

Editorial Note:

Riccardo Kurto, head of the BME office in China, will present the current results of the analysis by the BME expert group on China on the topic “Sourcing in China – strategic adjustments in light of (geo)political developments” in detail during an online press conference on March 22 at 10 a.m. We look forward to your participation and kindly ask you to register for organizational reasons at: presse@bme.de

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