Western Companies Slowly Turn Away From China Amid Rising Tensions

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Will Kessler Contributor
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Western companies are increasingly looking for ways to mitigate their risks as tensions rise with China, with some wishing to leave completely, according to the Financial Times.

Western companies, particularly those from the U.S. and the European Union, are choosing to mitigate or silo their operations in China as a risk management strategy, according to the FT. Growing worry about the West’s reliance on China comes as the country continues to dominate key supply chains, concern remains over a potential conflict involving Taiwan and the trade war between the U.S. and China rages on. (RELATED: ‘Not Good For Us’: Locals Furious Over Secretive Deal With CCP-linked Battery Firm)

“Europe is still thinking about what de-risking is and how to implement it in practice,” Agathe Demarais, senior policy fellow at the European Council on Foreign Relations, told the FT. “Over the past year there’s been much more private sector talk of localization strategies as a form of de-risking, but it takes several years for investment to come to fruition.”

Of U.S. groups surveyed by the American Chamber of Commerce in China this year, 12% were considering moving their sourcing outside of China, with another 12% saying they are already doing so, according to the FT. For European businesses discussing their current investments in China, 11% said they have started shifting out of the country, 7% are considering shifting and 13% have postponed the decision.

China and the U.S. are undergoing a trade war in the semiconductor industry in an attempt by both to gain a technological edge in their production. The U.S. has imposed sanctions on businesses to restrict the access of chips to Chinese firms, while China has put restrictions on its raw resources that are necessary to build the devices.

The U.S. and China have made attempts to deescalate tensions around the trade war, with the U.S. Department of the Treasury announcing Friday the launch of two economic working groups with Chinese financial institutions. Several U.S. leaders, including Secretary of the Treasury Janet Yellen and Secretary of State Antony Blinken, visited China this summer to participate in talks to ease tensions and promote closer cooperation.

National security leaders and experts have warned that China is gearing up its military to be able to launch a sea invasion of the democratically ruled Taiwan by the year 2027, which China claims to be part of its country.

“Most companies have no alternative to China,” Trey McArver, founder of Trivium China, told the FT. “They have to find strategies for operating in an environment of much higher risk.”

Some companies, in an attempt to stay in China, have localized their supply chains for Chinese production, such as pharmaceutical company Merck, which has said it will expand its Chinese sourcing to avoid importing raw materials, according to the FT. In an attempt to stay in the country, companies can attempt to silo their business operations in order to still tap into the massive Chinese market.

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