The Sound of Economics Why European firms are rethinking their presence in China
Jul 30, 2025
Théo Storella, a research assistant specializing in China affairs, and Alicia García-Herrero, a senior fellow at Bruegel, discuss the evolving strategies of European firms in China. They reveal insights from their research, highlighting four strategic approaches: doubling down, hedging, hibernating, and exiting. The conversation touches on the challenges posed by deflation and declining foreign investment, as well as the need for European companies to diversify their operations. They emphasize the importance of adapting to China's complex market while considering broader economic trends.
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Shift in European Firms' China Strategy
- European companies are shifting reasons for being in China from production and export toward innovation ecosystem participation.
- This reflects a major change in China's economic role and challenges profitability for firms.
Firm Strategy Typologies in China
- Analysis of European Chamber of Commerce surveys reveals distinct firm strategies: doubling down, hedging, hibernating, and exiting.
- These strategies correlate with firm size, sector, and growth outlook in China.
Doubling Down Despite Profitability Worries
- Nearly 30% of surveyed firms plan to expand in China despite negative profitability sentiment.
- Large firms can afford this 'doubling down' while smaller firms need profitability to sustain presence.