Manufacturing Costs in China: What European Companies Need to Know Right Now

Key Points

• The current pressure on manufacturing costs in China is not limited to oil prices or freight rates. The real impact is often less visible and can appear through material availability, lead times, and production planning.
• Production costs may not return to normal quickly, even when the market starts to stabilise. Suppliers usually price based on risk, and what is happening deeper in their own supply chains.
• China remains a strong manufacturing base for European firms, but the way a project is prepared now matters more than ever. The difference between a stable production run and a costly one is decided before the first batch is launched.
• European companies producing in China must know how to structure their projects so that disruptions, quality issues, and hidden costs are managed before they become expensive.Manufacturing in China remains competitive, but actual costs depend on industrial readiness, supplier selection, and quality control.

Planning the industrialization of your product in China requires careful consideration of many different aspects, from material selection down to logistics organisation.

It is crucial to be aware of the risks that the industrialization process entails, especially considering the ongoing global instability.

In this article we will help you understand why the manufacturing costs in China are impacted by much more than the oil prices and how you can prepare yourself before the next disruption.

Because if you are waiting for the Iran conflict to end before making decisions about your China production, you may be waiting for the wrong thing.

Why are manufacturing costs increasing in China?

According to McKinsey, shipping flows through the Strait of Hormuz dropped around 94 percent from late February 2026. At the time of writing, freight costs are up 130 percent, diesel and jet fuel up 110 percent, and natural gas up 57 percent. Meanwhile the IEA’s April 2026 Oil Market Report recorded the largest monthly oil price increase ever, with North Sea Dated crude up by roughly $60 compared to before the conflict.

For buyers who source products in China, the instinct is to look at those numbers and think about shipping costs. That is fair, but it is only part of the picture, as oil touches industrial production at multiple points that are not obvious.

Plastic components, surface treatments, adhesives, resins, coatings, and packaging materials all carry petrochemical content. A product that has nothing to do with energy, for example an injection-moulded housing or an aluminium casting, can still see its cost base rise because several of its input materials increased with oil.

What makes the current situation particularly difficult is how disruptions travel through a supply chain. McKinsey describes this as a system level event and not as a commodity fluctuation. That’s because price spikes cause shortages, shortages create pressure across whole industries, and that pressure works its way down through tier-two and tier-three suppliers to your factory, often well before you see any sign of it in a quotation.

The unit price is only the tip of the iceberg when it comes to manufacturing costs. Risks related to materials, quality, compliance, and deadlines are often determined before production begins.

Why costs may not normalise quickly

A ceasefire, or even a sustained fall in oil prices, does not automatically reset your production costs, since suppliers do not price solely on today’s spot market. They quote based on what they think is coming: their risk perception, their own suppliers’ pricing, their cash position, and how confident they are about demand over the next six months.

Considering the kind of disruption that happened in early 2026, it will take time for that caution to unwind. The OECD’s March 2026 Economic Outlook makes exactly this point, noting that elevated energy costs take time to work through business costs and consumer prices.

Furthermore, structural problems that existed before the conflict will make the recovery slower than most people expect. One of the most significant issues is highlighted by McKinsey’s annual survey of supply chain leaders, according to which most companies understand their risks only up to tier one. While visibility at tier two and beyond declined in 2023 and 2024, as the urgency of the pandemic years faded.

That means your factory’s own suppliers may have been absorbing cost increases for weeks before you had any indication, and those increases are already priced into what your factory will quote you next. A ceasefire does not reverse that overnight.

Is China still a good manufacturing base for European companies?

None of the above changes the fundamental case for manufacturing in China. UNIDO’s Industrial Development Report 2026 puts China’s share of global manufacturing production at over 30 percent, up from 3 percent in 1990.

The ecosystem that has built up around that scale is what makes China hard to replace: suppliers, subcontractors, tooling specialists, surface treatment facilities, packaging providers, and export infrastructure, often within an hour of each other.

For products requiring plastic injection moulding, aluminium casting, CNC machining, or multi-step assembly, that concentration of capability is not something you can simply replicate elsewhere, certainly not at comparable cost or speed.

Why does supplier selection in China matter more than unit price?

But the very depth of that ecosystem is what makes it easy to get wrong. The hard problem in China is not finding a factory, they are plentiful. The hard problem is understanding your actual exposure across the supply chain, and most buyers cannot see past their immediate tier-one supplier.

Weaker domestic demand in China is also putting pressure on factory margins, which, in turn, translates into reduced manufacturing investments in the country in Q3-25, as reported in the World Bank’s China Economic Update.

Why is it important to take this into account? Because when a factory is running below capacity with thin margins, it does the same things any business does: either it competes aggressively on price to fill the floor, or it tightens its minimum order quantities and quietly prioritise its larger, longer-standing customers.

What should European companies check before starting production in China?

The single most overlooked fact about manufacturing costs in China is that the decisions which determine your final cost are mostly made before the first batch runs. Think of design adaptation for manufacturability, supplier selection, tooling design, or sample approval.

One area that catches European buyers off guard more often than almost anything else is compliance. Carbon Border Adjustment Mechanism (CBAM), CE marking, REACH declarations, packaging regulations, and the documentation requirements under EU supply chain due diligence obligations are not things every Chinese supplier has encountered.

A factory that has never exported to the EU market can create serious downstream problems regardless of how good its unit price looks. That conversation is worth having explicitly, and early, before any tooling commitment is made.

This is why the industrialisation phase, including the engineering, supplier qualification, and validation work that happens before series production, is where margins are protected or lost. As UNIDO notes, industrial competitiveness, at a macro level, depends on productivity and capability, not just on output volume.

Why is quality control important before and during production?

Quality control is part of that same logic. Treating quality as a final inspection might seem efficient but correcting a problem only when goods are packed and ready to be loaded, is extremely costly.

Returning a container because of a tolerance issue that was detectable in week two of production is a vastly larger cost than the check that would have caught it at source. The correction now involves freight, customs, time, and very likely a damaged relationship with the customer waiting at the other end.

Quality must be built into the process from the start: supplier qualification before you commit, sample validation at each tooling stage, pre-production checks before the full run begins, in-process monitoring, and packaging verification before loading.

The practical reason to have engineers and quality managers physically present in China is precisely this: problems found on the production floor get solved on the production floor.

How can companies reduce risk when manufacturing in China?

Resilient buyers are the ones who have structured their production so that disruptions are less damaging.

McKinsey draws this distinction explicitly in its procurement guidance: reactive buyers spend their time responding to each price spike, hunting for emergency alternatives, and rebuilding buffers that have run out. Predictive buyers have done the upfront work on supplier qualification, supply chain visibility, and process discipline, so they are not starting from zero every time something goes wrong.

In practice that comes down to three points:

• Validate your product before you scale it: moving straight from prototype to series production without checking feasibility, tooling requirements, material stability, and packaging is where most industrialisation problems begin.
• Select suppliers on their total capability rather than their unit price: a technically capable supplier with solid quality systems and realistic lead times will almost always produce a better financial outcome than a cheaper one that creates defects and delays.
• Keep direct visibility in China: the companies that came through the 2020 to 2022 disruptions in the best shape were those with people on the ground who could walk into a factory, read the situation, and fix things before they became expensive.

How does an industrialisation partner reduce risk?

An industrialization partner gets involved before mass production begins to ensure the design, tooling, suppliers, samples, and quality control are all in order.

An industrialisation partner is much more than an intermediary who finds a factory. It is a technical and operational partner that helps turn a product design into a reliable, scalable production process.

At QoCreators we have been doing this since 1998, working between European companies and Chinese manufacturers from our base in Shanghai, with a commercial team in Haarlem.

We work with a qualified network of Chinese producers, involving at least three suppliers for every project, so that we always find the best production solution based on each project’s requirements, not on our available capacity.

We also collaborate with design agencies in France and the Netherlands, offering our clients a contact that understands both the product development process and the specific compliance and regulatory context that EU production requires.

The scope of what we handle covers the full path from prototype to series production, including:

• Design optimisation for manufacturability
• Mould design and mould flow analysis
• Supplier qualification
• Sample validation
• Quality control

One of our clients, UV Smart, described the value of QoCreators’ model directly:

“Having a partner that takes responsibility for multiple production processes and speaks the local language means planning and quality stay aligned throughout the project, not just at the start.”

China production costs are manageable with the right preparation

Oil prices will eventually come down. Freight rates will ease. The conflict will, at some point, resolve.

But the pressures that make China manufacturing difficult to manage from a distance, including limited supply chain visibility, EU compliance requirements, and the gap between a quoted price and actual production risk, were there before this crisis and will be there after it.

The companies that manage those pressures well are not the ones who found the cheapest factory. They are the ones who did the work upfront: the right supplier, a validated product, quality built into the process, and people in China who can see what is actually happening.

In a disrupted market that matters more than usual. But honestly, it has always mattered.

Do you want to manufacture 

your product in China?

QoCreators accompanies you from the prototyping phase, before production starts. We review your design, supplier options, technical risks and quality requirements, so you can move towards tooling and series production with more confidence.

Talk to Martijn about your project

FAQs

1. What factors influence manufacturing costs in China?

Manufacturing costs in China are influenced by several factors such as raw material costs, energy and oil prices, labour, tooling, logistics, and supplier capacity. Energy prices, for example, can impact plastic components, coatings, adhesives, resins, packaging, and surface treatments, meaning that cost increases can affect a wide range of products.

2. Is China still a good manufacturing base for European companies?

Yes, for many products China remains a strong manufacturing base, especially for plastic injection moulding, aluminium casting, CNC machining, tooling, assembly, and multi-step production. The key is to select the right production setup, validate the product properly, and manage quality and compliance from the beginning.

3. What should European companies check before starting production in China?

Before starting production, companies should check whether the product is ready for manufacturing, whether the supplier has the right technical capabilities, whether EU compliance requirements are understood, and whether quality controls are planned before and during production.

4. How can an industrialisation partner reduce risk when manufacturing in China?

An industrialisation partner can reduce risk by coordinating supplier selection, design optimisation, tooling, sampling, quality control and compliance checks. Having people on the ground in China also helps identify and solve problems directly at the factory before they become costly delays or quality issues.

Sources

This article draws on recent analysis and data from the following sources:

• International Energy Agency, Oil Market Report – April 2026.
• McKinsey & Company, When a chokepoint breaks: What procurement leaders must do now, April 2026.
• McKinsey & Company, Decoding disruption to reshape manufacturing footprints, January 2026.
• United Nations Industrial Development Organization, Industrial Development Report 2026, 2025/2026.
• World Bank, China Economic Update, December 2025.
• OECD, OECD Economic Outlook, Interim Report, March 2026.