Beijing now has strong new powers to punish firms for pulling manufacturing out of China. Multinationals are increasingly caught in a web of coercion and complex rules as they try to operate across the US, EU and China.
When Western firms pull production out of China or buy fewer parts from there to reduce dependence, it's called decoupling or de-risking. However, thinking China cannot stop this process is mistaken.
Chinese authorities blocked Meta's $2 billion takeover of AI startup Manus last month, signaling that even deals structured outside China's borders are no longer safe. Manus is headquartered in Singapore but has strong Chinese roots. China viewed the firm as a strategic asset in the global AI race and blocked the deal on national security grounds.
The move followed Beijing's swift introduction of the Regulations on Industrial and Supply Chain Security in April. These measures strengthen its ability to stop US tech giants from buying up high-end Chinese technologies. However, the new rules have much broader consequences.
In practice, Beijing is warning foreign governments and companies against decoupling. Chinese authorities can now retaliate against foreign firms that move factories to countries like Vietnam or India, or reshore production. They could also face fines and supply chain blacklisting if they comply with US and EU export controls or sanctions targeting Chinese entities.
"It's effectively meant to derail de-risking measures such as those the EU and member states, including Germany, have been taking to reduce dependency on China," said Rebecca Arcesati, an analyst at MERICS. Since the pandemic, both the EU and US have stepped up efforts to make supply chains more resilient and less dependent on China.
US President Donald Trump's aggressive new tariffs on Chinese goods in 2025 significantly accelerated the shift. Together, these disputes have hastened the move away from globalization toward a more fractured, bloc-based global trading system. The EU is increasingly taking concrete steps to better guard its trade with China.
In March, the European Commission published details of the Industrial Accelerator Act (IAA). While it does not explicitly single out China, the IAA aims to cut Europe's strategic dependencies on Chinese goods and investments and counter unfair competition from Chinese rivals, who often benefit from huge state subsidies.
This regulatory tug-of-war is putting multinationals — especially Germany's carmakers — in an increasingly difficult position as Volkswagen, BMW and Mercedes-Benz are keen to protect their substantial market share in China. They also profit from producing a considerable proportion of their vehicles in China, which are then exported to other territories.
Jens Eskelund, president of the European Union Chamber of Commerce in China, described Beijing's new powers as an "extraterritorial toolbox" that will further add to "complexity in global trade." "You could have situations where companies are caught in between regulatory measures being imposed in the US or Europe and in China, where it's impossible to comply with them all," Eskelund told DW.
There is anecdotal evidence, MERICS analyst Arcesati said, that China is already pressuring foreign companies over their plans to move some production to other countries. "China's leaders have determined that the best way of ensuring national leadership in this technology is for China to become more self-sufficient ... and for the world to rely more on China for supply chains and technology," she told DW.
Beijing has already shown its willingness to weaponize supply chains, tightening export controls last year on rare earth elements and other critical minerals. These materials are vital for the production of EVs, defense systems and advanced electronics.
The EU is under growing pressure from Beijing to water down the IAA. Several EU states with strong economic ties to Beijing, including Germany, are also urging a more cautious approach. Despite the EU's trade deficit with China reaching a staggering €360 billion in 2025, Brussels may struggle to hold firm.
Source: www.dw.com