European firms are diversifying away from Chinese supply chains due to Beijing’s export controls, leading to a trade surplus topping $1 trillion for China in November. Chinese shipments to the U.S. dropped 29% while exports to the EU grew 14.8%. The EU’s trade imbalance with China has widened, causing concerns for European firms.

The Chinese economy has seen 37 consecutive months of factory gate deflation, exacerbating trade imbalances with Europe. Beijing’s export controls on rare earths and critical materials have caused European businesses to face production stoppages and losses. Over 70% of European firms in China have reviewed their supply chain strategies, with some onshoring further into China.

Sectoral disparities show pharmaceutical and machinery firms increasing localisation, while IT and telecom firms and retailers are diversifying away from China. However, 22% of European firms still import critical components from China with no viable alternatives, highlighting supply chain vulnerabilities. French President Macron has threatened Beijing with tariffs over the ballooning trade deficit with Europe.

Read more at Yahoo Finance: EU firms in China accelerating supply chain diversification, report finds