Do European Firms Pull Back from China? Evidence of Divestment from the Auto Sector

What the paper says

In the context of intensifying economic nationalism and the geopoliticization of trade and investment policies, a large number of initiatives across the European Union have been introduced to ‘de-risk’ from China by incentivizing companies to pull back and bring production back to Europe. While such policies and their efforts to counter China’s dominance in supply chains have garnered much attention, little beyond anecdotal evidence is known about whether – and to what extent – European firms are responding to these calls. This paper sheds light on this dynamic and analyses the ownership structure of European automotive firms in China over a fifteen-year period (2008–2023) using original firm-level data. It finds that the largest European firms have largely maintained steady ownership levels in Chinese enterprises, with minimal evidence of significant divestment. These findings underscore the stability of European firms’ investment strategies during this period that covers the Great Financial Crisis and the aftermath of Covid-19, shedding light on the interplay between geopolitics and firms’ strategic decisionmaking in an era of increasing unilateralism.