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© Eurocircuits via Youtube Electronics Production | February 25, 2020

The dangers of Chinese dependancy for the European electronics industry

During the last 30 years, the European electronics industry has allowed itself to become heavily dependent upon the Chinese supply chain; and now we see the effects of that dependancy.

Author: Dirk Stans This effect already started in the 80’s with larger European electronics groups settling themselves in China to benefit from the cheap labour and resources. They all started joint ventures with Chinese shareholders setting up production plants to produce European developed Intellectual Property (IP). Not a decade after these endeavours started, Chinese companies rose up like mushrooms bringing similar products to the market but at lower cost to the customers, swiftly taking dominant market shares and overshadowing their former European partners. We all know the big names from the 80’s and 90’s that suffered from this rather naive approach of the Chinese manufacturing wonder. The Chinese themselves played it very cleverly, conquering the electronics world market. Instead of going top down, they went bottom up taking on board the manufacturing of all the key base components. The pricing level that these services were offered raises suspicions as to whether there was some kind of government support. For bare boards, Chinese sales prices are well below the material prices that the European manufacturers have to work with. This strategy decimated the European PCB market that once represented more than 40% of the world market, it’s less than 3% today and China now represents over 50% of the world’s PCB manufacturing. A similar situation is developing with the component manufacturing market. It may not come as a surprise that if the manufacturing motor of China splutters, as we have seen lately with the Coronavirus situation, that the effect on the European electronics market is vast. It may also not surprise you that in such situations, the remaining European PCB manufacturers, representing 3% of the world volume, only compensate a small amount of any shortcoming of the 50% giant. The European PCB manufacturing industry with its less than 3% world volume also risks the danger of becoming too insignificant to maintain the interest of suppliers. Keeping sales and service organisations operating in the EU market becomes increasingly more difficult. Also base material suppliers reduce their presence in Europe or are just not here anymore. Much of what we need in the PCB industry comes from China, even if we use a European manufacturer of base material, the copper foil still has to come from China. The European electronics industry’s addiction to the Chinese Supply Chain, with no real local backup, finds itself in a tight spot. In the EU our businesses, by paying taxes and/or taking actions, provide for many things that influence our daily life as there are: social care, health care, good infrastructure, care for the environment, care for climate, sustainability, accountability, not using child or forced labour, not using modern slavery, and many many more. In the EU we also care about privacy and our businesses have to deal with the strict rules of General Data Protection Regulation (GDPR) making it rightfully impossible to bombard people with emails without asking for them first. These rights/privileges that we hold dear in the EU and that we gladly support, kill all chances of meeting the Chinese competition on a level playing field. In search of a unique selling proposition against non-EU suppliers, the remaining European PCB industry has been focusing on prototypes and small series with short term deliveries targeting the electronics design market. Over the last 5 years we have seen an increasing interest of Chinese suppliers towards this market segment. The reason is clear as development lies at the beginning of the value chain. Now that volumes are already under the Chinese roof, prototypes and small series are next. They offer ridiculous prices to buy their way into the electronics design market. Chinese suppliers are even helped by our custom rules which apply no VAT for values below EUR 22 (In Belgium) and no customs clearance costs for values below EUR 150. As Chinese prototype prices are usually even below the VAT threshold value, this makes them very attractive to students and schools who will become our engineers of tomorrow and who are today sponsored with the taxes we all pay. It is very cynical to think that what we as an industry pay taxes for today, will kill us tomorrow. Electronics today forms an ever increasing and important part of our daily life. We find electronics in almost everything we do. For Europe, electronics design was always a key strategic task. It’s the basis for shaping our society and way of life. But as we all know, there can be no design without manufacturing in its proxy as the knowledge and experience of one influences the other. Hence the reason for China to choke the European prototype and small series PCB industry and the Assembly industry next. With those gone, design will soon shift to China as well, leaving China in full control of our electronics applications. Once China dominate the world electronics from making designs to delivering the end products, they dominate the world without the need for any aggressive act. Where the large nations in the world have their button to trigger a nuclear war, China's domination of the electronics industry, will have an entire panel of buttons to trigger all kinds of misfortune all over the world. Some examples that jump to mind can be:
  • Money transactions stop working
  • Malfunctioning of police, fire department, army, hospitals etc… due to communication disturbance
  • All wireless communication will fail
Our beloved Internet of Things (IoT) will be our weak spot, through which malicious intent could be executed. It all may sound like a metaphor, science fiction or rather far-fetched, but if you think this through, is it? And even if China has only our good fortune in mind, the effects of the latest Coronavirus crisis, make it crystal clear that we are hooked and totally addicted, with no backup whatsoever, to the Chinese supply chain for our European electronics industry. We must ask ourselves if this is what we want for our future and the future of our children.
About the author: Dirk Stans is a Managing Partner for the European specialist manufacturer and assembler of prototype and small series PCB’s Eurocircuits.
August 05 2020 12:04 am V18.8.2-2