Post by account_disabled on Feb 19, 2024 19:27:11 GMT -10
This week's news that a senior Nomura banker, Charles Wang Zhonghe, has been banned from leaving mainland China has rippled through foreign companies and investors in the country. The circumstances behind the ban remain murky, although it may be related to a long-running investigation into China's top tech sector negotiator, Bao Fan, who disappeared in February. But it is a reminder of how unpredictable the environment has become for foreign companies. The ban follows increasing scrutiny of foreign companies in China, including raids in May against U.S. consulting firms Capvision, Bain & Company and Mintz, which were accused of ignoring national security risks and transmitting sensitive information abroad. The growing uncertainties of operating in China only increase pressures on companies from their own governments to “de-risk” their ties amid rising geopolitical tensions and reduce vulnerabilities exposed by the pandemic. Many are choosing to relocate their operations overseas or split Chinese operations into independent units.
However, reducing risks is proving difficult, especially for manufacturers. There are few easy substitutes for China abroad. Multinationals rely on networks of suppliers based in China that can often Job Function Email Database produce inputs at lower prices than anywhere else in the world. Reducing manufacturing bases in China often means higher production costs and a loss of competitiveness. One option is to hedge bets through a “China plus one” strategy: keep Chinese plants but direct new investments to India or Southeast Asian countries like Vietnam. Apple, which manufactures its latest iPhone 15 in both India and China, is a notable example. However, Apple's efforts to diversify manufacturing in India have hit roadblocks, including quality control and efficiency issues.
A recent and growing trend – driven both by China's own behavior towards foreign companies and by pressure from Western governments – is “China for China” strategies, or the reconfiguration of Chinese operations to serve only the vast market. internal. This potentially insulates international groups against Chinese regulatory actions. Localizing supply chains can also reduce dependence on raw materials from outside China, which could be disrupted by US sanctions. But for manufacturers, creating separate supply chains for Chinese and non-Chinese companies is costly, even if it is possible to do so. Service companies, especially those that use data in areas such as finance, consulting or IT, may have no choice but to move towards “China for China” strategies. Their lives became more difficult after Beijing implemented an expanded anti-espionage law this summer that restricts the international sharing of data considered sensitive.
However, reducing risks is proving difficult, especially for manufacturers. There are few easy substitutes for China abroad. Multinationals rely on networks of suppliers based in China that can often Job Function Email Database produce inputs at lower prices than anywhere else in the world. Reducing manufacturing bases in China often means higher production costs and a loss of competitiveness. One option is to hedge bets through a “China plus one” strategy: keep Chinese plants but direct new investments to India or Southeast Asian countries like Vietnam. Apple, which manufactures its latest iPhone 15 in both India and China, is a notable example. However, Apple's efforts to diversify manufacturing in India have hit roadblocks, including quality control and efficiency issues.
A recent and growing trend – driven both by China's own behavior towards foreign companies and by pressure from Western governments – is “China for China” strategies, or the reconfiguration of Chinese operations to serve only the vast market. internal. This potentially insulates international groups against Chinese regulatory actions. Localizing supply chains can also reduce dependence on raw materials from outside China, which could be disrupted by US sanctions. But for manufacturers, creating separate supply chains for Chinese and non-Chinese companies is costly, even if it is possible to do so. Service companies, especially those that use data in areas such as finance, consulting or IT, may have no choice but to move towards “China for China” strategies. Their lives became more difficult after Beijing implemented an expanded anti-espionage law this summer that restricts the international sharing of data considered sensitive.