Asger Risom
We spent decades treating “Made in China” as a label for cheap goods. Now, Chinese manufacturers are taking over the high-end automotive and luxury markets that built the European economy.
We spent the last two decades treating “Made in China” as universal shorthand for cheap fast fashion and disposable electronics. But the era of western brands outsourcing their grunt work to East Asia while hoarding the profits is officially over.
According to a grim new analysis by Fortune, Chinese manufacturing has aggressively moved up the value chain. The country is no longer just assembling our cheap plastic goods; it is actively conquering the high-end, foundational industries that made Europe rich.
To understand the shift, look at Gucci. The luxury house built its entire 105-year legacy on Italian craftsmanship. Yet, for its newest $1,000 sneaker, Gucci bypassed Italy and stamped “Made in China” on the label.
The brand didn’t make the move to exploit cheap labor, but because it needed the Chinese manufacturer’s advanced “technological know-how” to meet its quality standards.
The second China shock
Economists are calling this the “second China shock.” The first wave flooded our markets with cheap textiles and consumer tech in the early 2000s.
This second wave consists of advanced electric vehicles, industrial machinery, and luxury goods that compete directly with Europe’s most storied legacy brands.
Nowhere is the panic more palpable than in Germany. For decades, companies like Volkswagen used China as an assembly line, training generations of local suppliers to meet strict western manufacturing standards.
Those suppliers learned the trade, accumulated the capital, and are now cutting out the middlemen to launch their own high-margin brands.
The transition to electric vehicles entirely erased Germany’s biggest historical advantage: the prestige of the internal combustion engine.
The performance of a modern car is now dictated by battery chemistry and software integration—two sectors where China wields absolute dominance.
The financial fallout has been brutal. Chinese automakers recently outsold Japanese brands in Europe for the first time, while German car exports to China plummeted by a third last year.
Volkswagen, a company that once relied on China for more than half its global profits, has seen its Chinese deliveries crater by 36.6 percent. In response, the automaker is slashing its model lineup and eliminating 100,000 jobs—the largest corporate restructuring in its 90-year history.
The Swiss watch warning
European industry is currently staring down the exact same barrel that the Swiss watchmakers faced in the 1970s. When cheap, highly accurate Japanese quartz watches flooded the market, the Swiss industry was nearly annihilated.
The only brands that survived, like Omega, retreated to the absolute top of the market, selling mechanical watches strictly as luxury status symbols. But surviving required a massive contraction; the Swiss watch industry shrank from 90,000 workers to just 30,000.
A high-end heritage brand like Ferrari can survive that kind of retreat. A mass-market behemoth like Volkswagen, which needs to sell 9 million cars a year to keep the lights on, cannot.
The ultimate, bitter irony of this economic shift is how Europe is responding. In a desperate bid to survive the electric transition, Volkswagen recently paid $706 million for a 5 percent stake in the Chinese EV maker Xpeng, specifically to co-develop cars for the Chinese market.
Forty years after European giants arrived in China to teach them how to build cars, they are now paying hundreds of millions of dollars to learn from their own students.
