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In March, when a visiting delegation of Swedish investors and bankers passed through factories and shipyards in China for the first time since the pandemic, what they witnessed was a shock to their systems.
Across the mainland, where Swedish manufacturers have a long-standing presence, competition from Chinese companies has been “fierce,” even “brutal,” according to Matthias Sandling, chief equity strategist at Handelsbanken. “The way they were able to catch up and develop in just two or three years was amazing to us,” he said. “The cliche of Chinese competition was that of cheap copies. I think the wake-up call for us when we were on this journey was that that is no longer the case.
From high school exams to bubble tea franchises, intense local competition is spreading across China. Now, as embodied in the expansion of electric vehicle production, this sense of competition poses an increasing challenge to international companies.
Automobiles are just one part of a broader industrial framework, in which advanced economies have for decades relied on China as a hub for collaborative and inexpensive manufacturing. The Swedish presence includes giants such as Atlas Copco, the world leader in air compressors, and Sandvik, which makes mining equipment.
The atmosphere of cooperation has not disappeared, especially in foreign companies that are now largely staffed by Chinese nationals. But they are now accompanied by increasing competitive pressures. “The general idea is that if you're not a premium product, you're going to get hit hard,” Sandling said.
Governments in the United States and Europe have placed great emphasis on the need to “de-risk” supply chains away from China after the Russian invasion of Ukraine and the closure of borders in light of the pandemic. But the more competitive the mainland becomes, the more difficult it becomes for international industrial players to leave the country. At the end of 2020, Volkswagen opened a research and development center in Anhui Province, and owns a significant stake in Chinese battery company Guoxuan.
Both old and new industrial companies repeatedly emphasize the need to have a presence in China for research purposes as well as access to its vast market. Windrose Technology, an electric truck startup that has so far produced 13 vehicles, aims to eventually list in the United States but is currently relying on partners in mainland China, including state-owned Anhui Jianghuai Automobile Group, for manufacturing.
“As an electric vehicle maker, if you are not tied to China and pretend to be the best truck in the world in electric vehicles, no one will believe you,” said Wen Han, founder of Windrose. “If I told people I was an Australian electric car startup, people probably wouldn't believe me. If I told people I was a British electric car startup, they wouldn't believe me either.
Although China is in some ways a hotbed of competition, the nature of its industrial model is profoundly different from that of the United States and Europe. The need for so-called “high-quality development” is part of a top-down approach set out in the 2025 “Made in China” policy, and became President Xi Jinping’s catchphrase last year.
This week, the European Commission updated a 2017 policy document on Chinese trade distortions that identifies various areas, such as energy and finance, where competition is suppressed both domestically and for any foreign company hoping to expand.
But the report also touches on competition with Chinese characteristics. In China, the report notes, “provinces and major cities appear to be competing with each other for this award [electric-vehicle] producers in their region, in order to attract jobs, revenues and the attention of the central government.
The role of the state in China is difficult to define easily compared to the transparently codified parameters of Western economies. Chinese companies do not typically react to questions about their relationship with the government, but since the EU report is more than 700 pages long, such relationships are widespread.
If competition with Chinese companies rises, political scrutiny of China's relationship with international trade will also rise. But across Europe and the United States, companies are already rushing to improve their understanding of the nature of that competition.
On the Swedish trip, most participants did not invest directly in China, but felt they needed to attend because of their holdings in the local stock market.
“Nordic companies, especially in manufacturing, have significant exposure, directly or indirectly,” says Sandling. “The minute we got back. . . We were completely inundated with conversations and meetings.
thomas.hale@ft.com
