Beijing now has strong new powers to punish companies that transfer their production outside of China. Multinationals are increasingly caught in a web of coercion and complex rules as they try to operate in the US, EU and China.
When Western companies move production out of China or buy fewer parts from there to become less dependent on the country, this is called decoupling or reducing risks.
And you would think that China can’t stop the rest of the world from disengaging, right? Tell that to Beijing.
Chinese authorities blocked the acquisition of the artificial intelligence startup (IA) Manus for Meta for $2 billion (€1.7 billion) last month, sending a clear signal that even deals structured outside China’s borders are no longer safe.
Manus is based in Singapore, but has strong Chinese roots. China considered the company one of its strategic assets in the global race for AI and blocked the deal on national security grounds.
The move followed Beijing’s rapid introduction of Regulation on Industrial and Supply Chain Safetyalso in April. These measures reinforce its ability to prevent US tech giants from purchasing cutting-edge Chinese technologies.
New rules make “unlinking” difficult
The new rules, however, have much wider consequences. In practice, Beijing is warning governments and foreign companies against decoupling.
Chinese authorities can now retaliate against foreign companies that transfer factories to countries such as Vietnam or India, or that repatriate production to their countries of origin. They may also face fines and blacklisting in their supply chains if they comply with export controls or US and European Union sanctions against Chinese entities.
“The objective is, in practice, prevent risk reduction measureslike those that the EU and its Member States, including Germany, have been adopting to reduce dependence on China,” Rebecca Arcesati, an analyst at the Mercator Institute for China Studies (MERICS), told DW.
Since the pandemic, both the EU and the US have stepped up efforts to make supply chains more resilient and less dependent on China. Many foreign companies reduced their operations in the country. Part of the production was repatriated to closer countries.
Trade tensions between China and the West have persisted for years, but US President Donald Trump’s aggressive new tariffs on Chinese goods in 2025 significantly accelerated this change. Taken together, these disputes have driven the transition from globalization to a more fragmented, bloc-based global trading system.
Europe reacts to Chinese overproduction
Faced with the repeated dumping of cheap Chinese products — most recently, electric vehicles (EVs) — flooding the European market as a result of Trump’s tariffs, the EU is increasingly take concrete steps to better protect its trade with China.
In March, the European Commission, the EU’s executive arm, published details of the bloc’s Industrial Acceleration Act (IAA). Although it does not explicitly mention China, the IAA aims to reduce strategic dependence on Europe in relation to Chinese products and investments and combat unfair competition from Chinese rivals, who often benefit from huge state subsidies.
This regulatory dispute is putting multinationals — especially German car manufacturers — in an increasingly difficult position as companies such as Volkswagen, BMW and Mercedes-Benz are committed to protecting their significant share of the Chinese market.
They also profit from producing a considerable portion of their vehicles in China, which are subsequently exported to other territories. Domestically, they face pressure to reduce dependence on Chinese components while competing with growing Chinese electric vehicle competition.
Companies face an impossible balance
Jens Eskelund, president of the European Union Chamber of Commerce in China, described Beijing’s new powers as an “extraterritorial toolkit” that will further increase the “complexity of global trade.”
“There may be situations where companies are caught between regulatory measures imposed in the US or Europe and China, it is impossible to fulfill all of them“, Eskelund tells DW.
There are signs, according to analyst Arcesati, from MERICS, that China is already pressure foreign companies in relation to its plans to transfer part of the production to other countries.
“Chinese leaders have determined that the best way to ensure national leadership in this technology is to China becomes more self-reliant… and the world depends more on China in terms of supply chains and technology,” he told DW.
Beijing has already demonstrated its willingness to weaponize supply chains by tightening export controls last year on rare earth elements and other critical minerals. These materials are vital for the production of electric vehicles, defense systems and advanced electronics.
Chinese pressure to weaken the Agreement on the Importance of Autonomy (AIA)
The EU is under increasing pressure from Beijing to weaken the AIA. Several EU member states with strong economic ties to Beijing, including Germany, are also advocate a more cautious approach.
Despite the EU’s trade deficit with China reaching a staggering €360 billion ($424 billion) in 2025, Brussels may find it difficult to hold its own, even as many analysts warn of the urgent need for Europe to protect its industrial future.
“If I were a European policymaker, … I would redouble efforts,” Alice Garcia Herrero, chief economist for Asia-Pacific at French investment bank Natixis, told DW. “If we continue to accept the threat from China, we will have less and less room to maneuver“.
