The changing dance between the West and China is anything but subtle. Western companies, once entranced by the allure of the Chinese market, now cautiously tiptoe around it, wary of the rising geopolitical and trade tensions.
The latest term in vogue? “De-risking.” It’s the West’s new catchphrase, signaling an inclination to sidestep potential confrontations with China rather than sever ties outright. Yet, for all its diplomatic appeal, the business landscape struggles to find a tangible path to make this strategy robust.
The China De-Risking Dilemma
Europe is caught in a contemplative phase, pondering how to effectively navigate this de-risking strategy. Behind closed doors, there’s a buzzing interest in localizing business models as a means to insulate from unpredictable disruptions.
It’s a move that might sound promising on paper, but the reality of shifting substantial investments is far from instantaneous. Beijing’s heavy-handed COVID measures and Moscow’s moves on Ukraine have amplified the West’s unease.
Concerns about China’s commanding presence in key supply chains, potential Taiwan tensions, and the ongoing US-China trade tiffs dominate boardroom discussions.
And it doesn’t end there. The EU now grapples with its swelling trade deficit with China and is scrutinizing electric vehicle imports for potential foul play.
Strategic Shifts in Business Blueprint
Signs indicate that Western businesses are slowly recalibrating their Chinese investments. A European Chamber of Commerce survey reveals that while 11% of European enterprises have shifted investments away from China, another 22% are contemplating such a move.
Worryingly for China, less than half of these businesses have expansion plans for the country. Likewise, US firms are mulling over reducing their Chinese footprint, with 12% already having relocated their sourcing and another 12% deliberating the move.
In this global chess game, companies find themselves between a rock and a hard place. Giants like Apple and Intel are spreading their risks, channeling investments to nations like India and Southeast Asia but retaining their Chinese factories. The strategy has earned a moniker – “China plus one.”
However, the most deliberated tactic seems to be the “China for China” approach, where businesses restructure their Chinese operations to cater exclusively to the local market.
Take AstraZeneca for example; they’re mulling over listing their division in Hong Kong, partly as a safeguard against regulatory shifts that favor homegrown brands.
Simultaneously, companies like German’s Merck are gearing up to enhance their Chinese supply chains to cut down on outside dependencies.
The strategic maneuvers don’t stop with the tech and pharma industries. Auto giant Volkswagen, heavily reliant on China for its profits, has poured a whopping €4bn into the country recently.
Their move signifies a shift towards more autonomous operations in China, transforming it into a secondary nerve center for the global conglomerate.
And then there’s the tech terrain. With export sanctions on high-tech equipment from countries like the US, Netherlands, and Japan, certain Chinese clientele are leaning into products devoid of foreign components.
This insulates them from future punitive measures. Companies like STMicroelectronics are tactically realigning their organizational structures, seemingly readying themselves for potential separations of their China operations.
It’s not all about hardware and investments either. The digital realm is shifting as well. With Beijing’s rigorous data policies and global trepidations over data breaches, Western companies are now setting up China-specific IT infrastructures, effectively turning the country into a unique, isolated market.
In essence, if the business landscape were a silo, it’s now sporting limited entry and exit points. An executive stated, and I concur, “China is increasingly seen as an outlier.” While the tech executive might have been referencing data, I’d argue it’s a sentiment that’s permeating broader business dealings.
To say that the tide is turning would be an understatement. The once-resplendent allure of China’s vast market is now clouded by caution and strategic hesitance. If “de-risking” is the game, the West is still trying to master its moves, but the board is set, and the pieces are in motion.
