More than two years ago on the outskirts of a medieval German town, China’s biggest EV battery company placed a €1.8 billion ($2 billion) bet on the future of global trade.

The decision by Contemporary Amperex Technology Co. Ltd. to open a sprawling factory in central Germany — its first outside China — symbolized President Xi Jinping’s recognition that protectionist impulses around the world are here to stay. The idea was simple: invest abroad, create local jobs and keep Chinese goods flowing into key markets. CATL — which this week started trading in Hong Kong after raising $4.6 billion — is a flagship example of that initiative. 

“I see ourselves as a blueprint for Chinese companies who are looking to expand in Europe,” Matthias Zentgraf, the battery giant’s European president, said from his factory office outside the town of Arnstadt. With the EU slapping tariffs as high as 45% on Chinese EV exports in 2024, it’s a tactic being rolled out from Spain to Hungary by companies including BYD Co., Chery Automobile Co. and Zhejiang Leapmotor Technology Co. 

As tariffs and protectionism rise around the world, that strategy is looking like a critical lifeline for China’s economy. CATL has little exposure to the U.S., so new American tariffs have limited impact. Building factories abroad helps Beijing defuse complaints about surging exports and widening trade deficits. Chinese overseas investment surged by $48 billion, or 28%, in the first quarter of 2025 from a year earlier, according to preliminary data from the State Administration of Foreign Exchange. 

Yet Chinese companies are discovering some downsides to the build-abroad strategy, including more labor-management tensions than are typical in China, higher operational costs, and the risk that key technology and know-how leak to competitors.

Even in Arnstadt — where CATL’s arrival is seen as a success — it hasn’t been an entirely smooth run for the company’s first-ever overseas plant and its approximately 1,700 European and Chinese employees. The factory’s ramp-up was plagued by cultural hurdles, labor disagreements and other issues that frequently hobble new operations overseas. 

For starters, the company found Germany’s higher energy costs to be a problem compared to working in China — partly the result of lost Russian gas supplies after the Ukraine war began. Energy prices have driven almost half of the companies surveyed last year to consider limiting production or moving abroad, according to a poll by the German Chambers of Industry and Commerce. 

“Nobody here in Germany can build products at a competitive market price because of the high energy costs,”  Zentgraf said in a February interview.  

There are also issues specific to the EV market. European car sales barely grew last year as persistent inflation, higher borrowing costs and apathy toward electric models led consumers to hold off on buying. That may be changing: EV sales in Europe rose 28% in the first quarter, with demand surging in markets including Germany, the UK and Italy.

Then there are the labor issues.

A technical supervisor at the CATL plant, who asked not to be identified discussing internal issues, said the company’s mostly European workforce prefers a fixed schedule, while the visiting Chinese workers are more likely to embrace overtime and tolerate less predictable routines. Local staff even went on strike last year over a lack of toilet paper in the bathrooms, seeing it as a bid to keep them from taking breaks, according to two former employees who asked not to be identified.

They’re the kind of mundane, but still critical, tensions that Western companies long confronted when setting up operations in China. Zentgraf, CATL’s European president, conceded there is a “productivity gap” when it comes to the mixed European-Chinese workforce, but he added that it’s “offset by CATL’s closer proximity to major European customers and the ability to react to local change in demand.” 

CATL didn’t directly address a question about last year’s strike, but said the company “supported the election of a works council at the German plant” and is working to ensure “an open and progressive work environment for everybody.” 

The company tried to get ahead of some of the risks in Arnstadt, a city of about 30,000 people along the Gera River whose claim to fame is that composer Johann Sebastian Bach was once a local church organist.

The company brought in several hundred Chinese workers to get the factory going, accounting for about 30% of its workforce, but started scaling that back as more local hires were trained. Today CATL’s batteries are assembled, packed and delivered by an overwhelmingly European team to Germany’s biggest automakers, including Volkswagen AG and BMW AG. 

Arnstadt Mayor Frank Spilling admitted that there were some “reservations” locally when the CATL factory arrived about too many foreign workers coming to take all the jobs. But it’s all proven to be “nonsense” since then, he said. 

The biggest threat to China’s strategy for now may be U.S. President Donald Trump’s attempts to leverage negotiations with other nations and the European Union to limit trade with Beijing. That could include restrictions on Chinese investments and preventing countries from absorbing Beijing’s excess industrial capacity.

Xi is fighting the Trump administration’s approach, even as China and the U.S. hit pause on weeks of escalating trade tensions. 

China’s Ministry of Commerce has repeatedly warned countries against reaching agreements with the U.S. that sideline or isolate Beijing. The country “resolutely opposes any party reaching a deal at the expense of China’s interests,” the ministry said last month.

China is also promoting itself as a more reliable steward of the global trading regime. That’s a message Xi took on the road in April, visiting Vietnam, Malaysia and Cambodia to build support for closer ties, as well as this month in meetings with Latin American leaders. It’s one he’s sure to emphasize when European ministers travel to Beijing in July. 

The U.S. isn’t the only threat. Newly elected German Chancellor Friedrich Merz has long looked skeptically at closer ties with China and said this month he’ll pursue “strategic de-risking” with the world’s second-biggest economy. Beijing’s close ties to Russia amid the war in Ukraine continue to frustrate Merz and many other European leaders. 

Xi, as well, has signaled some reservations about how far the effort to establish more factories overseas should really go. As it vies for dominance in the global EV market, Beijing has advised its automakers to ensure that advanced vehicle technology stays in China. It has also ramped up scrutiny of outbound investments after record capital outflows pressured the yuan. 

“Chinese firms are stuck between a rock and a hard place” when it comes to navigating EU demands for more localization and Xi’s expectations that core technology stay in the country, said Gregor Sebastian, a senior analyst with Rhodium Group’s China Corporate Advisory team.

For now, Xi’s invest-abroad approach is looking like China’s least-worst option. Spilling, Arnstadt’s mayor, echoed that idea in his interview, saying that the success of CATL and other businesses relocating to Arnstadt have had some drawbacks, including increased traffic complaints, but that it’s a price worth paying. 

“The advantages clearly outweigh the disadvantages,” he said.