By Lingling Wei

Washington and Beijing may be headed toward decoupling. But U.S. companies' ties with China are proving hard to break.

A new report commissioned by the U.S. Chamber of Commerce Foundation showed that many of the roughly 200 American companies surveyed in the past couple of years plan to hold on to or increase their ties with China, even as some companies sought to diversify out of the country as tensions between the powers deepened.

At the same time, the report shows that most of the companies, ranging from small businesses to multinational firms, also identify China as their No. 1 source of geopolitical risk, followed by Russia. The report is based on research and surveys before recent trade fights between the Trump administration and Beijing.

"There hasn't been a mass exodus of American companies from China," said Meg Rithmire, a professor at Harvard Business School who co-authored the report and conducted in-person interviews with executives from about 60 companies. "However, businesses are also taking seriously the risks posed by China and have a strong desire to guard against those risks."

About 70% of roughly 40 members of the U.S. Chamber of Commerce that responded said they plan to maintain or increase engagements in or with China. In addition, over 60% of 126 members of the Association of Corporate Counsel, a group for legal professionals at corporations, indicated the same intention.

Meanwhile, 83% of 56 Chamber respondents cited China as the top "geography of concern" and 70% of 165 respondents from the counsel association did.

One of their top concerns over China, the report shows, is Beijing's national-security agenda. Businesses worry about raids, investigations and other hostile actions; China's own innovation drive that threatens to squeeze out foreign companies from a market they help build; and growing instability across the Taiwan Strait.

"For me, my agenda is No. 1: China. No. 2: China. No. 3: China," a risk-management executive was cited by the report as saying.

The report underscores the precarious balancing act businesses from all over the world are attempting to perform -- especially at a time when relations between the Trump administration and Xi Jinping's government appear to be heading toward a breakdown.

For decades, C-Suites, boardrooms and institutional investors from the U.S. and its allies have come to view China as the market they can't afford to lose. Yet many of them also find themselves increasingly vulnerable to Beijing's pressure tactics amid its worsening ties with Washington.

Last week, for instance, U.S. chemicals and materials company DuPont featured prominently in a broad set of retaliatory measures Beijing announced in response to President Trump's latest tariff assault. Without giving much detail, China launched an antitrust probe into the China operations of DuPont, which relied on the mainland and Hong Kong for 19% of its revenue last year.

The chamber foundation report gives a full account of a suite of Chinese laws concerning data security, cybersecurity, counterespionage and others that has empowered China's state agencies to intervene in business activities. The report describes it as a "nexus of risks for global firms."

Those risks, coupled with a sluggish Chinese economy, have caused some companies to shift their production from China. But, according to the report, that trend is hard to quantify because of corporate reluctance to disclose such moves for fear of Chinese authorities setting up roadblocks for them or outright government retaliation. Overall, according to the report, U.S. foreign direct investment in China has slowed, even plateaued, since 2021. Globally, foreign direct investment into China decreased by roughly 80% between 2022 and 2023.

Meanwhile, the U.S.'s response to China's actions is also adding to the challenges for American companies that invest or operate in China, or simply trade with the country, the report shows.

For example, while Chinese authorities at times have pressed American chip makers to make available in China products they sell in other countries, Washington has enacted legislation restricting American companies' ability to sell to China and expand certain types of production there.

As "selective decoupling" from China takes hold in Washington, the report says, "U.S. business in China and with Chinese parties has come under unprecedented scrutiny."

Still, even with the heightened risks, the report shows the size of the Chinese market, its well-routed system linking suppliers and manufacturers and its skilled workforce have all led to most of the companies surveyed wanting to stay engaged with China.

The report recommends that companies with ties to China set up a geopolitical or China risk-management committee reporting to the CEO, board or investment committee. Such a committee, it says, should gather information inputs on China's legal and regulatory landscape and business exposure.

"We're arming businesses to make better decisions as risks escalate," said David Fagan, a partner at Covington & Burling who co-authored the report. "Companies need to integrate national security into their decision-making to help reduce their vulnerability to exploitation by China."

Write to Lingling Wei at Lingling.Wei@wsj.com

(END) Dow Jones Newswires

April 08, 2025 05:00 ET (09:00 GMT)

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