The world’s manufacturing giant is going global, and Western incumbents are nervous.
“Made in China” is quietly becoming “made by China.” Faced with steep Western tariffs and weak demand at home, Chinese manufacturers are exporting their factories everywhere from Brazil to Hungary to South Carolina. Last year, Chinese outward direct investment rose 7.1% while domestic investment fell 3.8%, the first annual decline on record.
Picture a Barcelona car plant that Nissan walked away from. Today it’s humming again, employing 1,600 people, many of them previously laid off, building cars under a historic Spanish brand. The catch? Under the hood, the tech and parts are mostly Chinese. That’s the new playbook in a nutshell, and it’s making a lot of people in the West very uneasy.
What Happened
Chinese companies are no longer content to ship products across oceans. They’re planting factories directly inside the markets they want to sell to. BYD is building EVs in Brazil and Hungary. Battery giant CATL has projects running in Hungary, Indonesia, and Spain. Appliance maker Midea just teamed up with Sweden’s Electrolux to jointly run manufacturing in South Carolina and Mexico.
And more could be headed to America. After a recent Beijing summit, the U.S. and China agreed to set up a new bilateral “board of investment” to consider Chinese spending plans on American soil.
The Backstory
Here’s the squeeze driving all of it. After decades of churning out the world’s goods from inside its borders, China’s factories now face overcapacity, brutal price wars, and weak domestic consumption. Profits are eroding. Owners are wary of investing at home and hungry to expand abroad.
The Chinese have a word for it: chuhai, meaning “going overseas.” Midea’s CEO put the logic bluntly, noting that domestic growth has stalled and a wave of new competitors is flooding in, so the company must look outward.
The Plan
The strategy is about getting inside the wall. Tariffs punish imports, so you build locally and skip the tariff entirely. Even better, you partner with a struggling local incumbent who has spare factory capacity and high overheads to cover.
That’s exactly what’s unfolding in Europe’s auto sector. Stellantis said it plans to build EVs with two separate Chinese companies in Spain and France. Ford and Geely are in talks about a similar deal in Spain, with chatter about extending it to the U.S. For the Europeans, it’s found money. For the Chinese, it’s a side door into a protected market.
The Business Model Angle
This is the classic “Trojan horse via local partnership” move, and entrepreneurs should study it closely. When you can’t enter a market head-on because of tariffs, regulation, or brand distrust, you find a distressed local player sitting on assets they can’t fully use, and you rent your way in.
There’s historical precedent that should comfort nobody and everybody at once. When Japanese carmakers expanded into the U.S. in the 1980s and 90s, it forced American firms to adopt new approaches that ultimately made them more resilient and helped buyers. Competition is uncomfortable, but it can sharpen the incumbents who survive it. The lesson for founders: incumbency is not a moat. Idle capacity is a liability someone smarter will monetize.
The Risk
This is where the forced optimism stops. The model has real friction. Gotion’s $2.4 billion Michigan battery plant has stalled after years of local opposition over its Chinese roots. BYD got hit with allegations in Brazil that workers building its factory faced what authorities called slavery-like conditions, with one dormitory reportedly having a single toilet for 31 people. BYD says it dropped the contractor and has zero tolerance for labor violations.
The deeper worry is value capture. Critics fear Chinese firms could grab lucrative consumer markets without generating much local employment or economic value, while the components and profits flow back to China. Europe’s auto industry alone accounts for 7% of EU output and 13 million jobs. That’s a lot to put on the table. As one staffing consultant who works with Chinese firms in the U.S. put it, “You cannot use the Chinese way.”
Quick Questions
Why are Chinese factories moving overseas now?
Tariffs make exporting expensive, and demand at home is weak with too much capacity. Building locally dodges tariffs and gets them closer to customers.
What does chuhai mean?
It’s Mandarin for “going overseas,” the term Chinese businesses use for this whole expansion strategy.
Is this good or bad for local workers?
Both, depending on where you look. The Ebro plant in Spain employs 1,600 people. Brazil saw labor-abuse allegations. Outcomes hinge heavily on enforcement and the deal terms.
Will Chinese carmakers start building cars in the U.S.?
Maybe. A new U.S.-China “board of investment” is being set up to evaluate it, though several lawmakers are pushing hard to block it.
The Bottom Line
The smartest competitive moves rarely announce themselves at the front gate. When direct entry is blocked, the winners find a side door, usually through someone else’s underused assets. If you’re an incumbent sitting on spare capacity, idle plants, or a tired brand, understand that your weakness is someone else’s market-entry strategy. The question isn’t whether competition is coming. It’s whether you’ll be the one renting out the factory or the one quietly taking it over.
Read the original reporting from The Wall Street Journal, and explore more business breakdowns on the Business Model Analyst blog.
