The in-China-for-China corporate gray zone

Historically, foreign companies have devised an "in-China-for-China" production strategy that allowed them to develop products and services that were specifically tailored to the needs of Chinese consumers. For years, this strategy has helped foreign companies to achieve the dual objectives of steering clear of sanctions and controls on the export of “leading edge” technology, while keeping the manufacturer’s most valuable intellectual property out of reach from competitors.

But this high-stake practice is coming to an end. Increasingly, multinationals find themselves operating in the uncertain and constantly changing policy space between their home and host governments as these states pursue competing economic and national security agendas. The story behind Mitsubishi’s exit from China, writes Research Fellow Alex Capri, is a story of how the widening geopolitical "gray zone" for corporates — rife with sanctions, export controls, investment restrictions, and, yes, decoupling — is changing the trade landscape. Ultimately, foreign multinationals trying to do business in China must ask the difficult question of whether China is still investable in the long term, as geopolitical and economic pressures compound the dilemma.