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A new VoxEU/CEPR analysis of Japanese multinationals from 2009–2022 finds companies aren’t rushing to abandon China when geopolitical risk rises, they’re building insurance capacity elsewhere, especially across ASEAN. The pattern is pragmatic: keep China for scale and ecosystem depth, but reduce single-point failure by adding alternate production and sourcing nodes nearby.
The study measures firm exposure using real operating linkages, how much a company imports from China-linked affiliates and how deep its FDI footprint is, and shows that higher China-GPR exposure raises the likelihood of firms diversifying import sources and adding manufacturing affiliates in ASEAN. The effect is meaningful: a one-standard-deviation increase in exposure lifts the probability of import diversification by roughly 1 percentage point, a big jump against a low base rate.
But the headline takeaway for CXOs is what doesn’t happen: there’s limited evidence of wholesale relocation (closing China plants and shifting everything to “friend-shored” sites). The drag is structural,sunk capex, supplier density, skills, and operational know-how embedded in China make full exits expensive and risky. So firms choose a middle path: regional diversification to build resilience without detonating cost structure.
