For most clients, China remains a key part of the supply chain. The structural conditions that made high concentration an obvious choice have changed. The work today is recalibrating to reflect what's actually true now — about cost, about risk, and about what efficient operations require.
"The question facing executives is not, 'Should we be in China?' It is, 'Are we comfortable with our current exposure to China?'"
For two decades, the strategic posture toward China was defined by efficiency and cost arbitrage. Single-country concentration was the obvious choice because the conditions that made it efficient — low labor cost, light regulation, a frictionless trade relationship with the US — held without serious challenge.
Those conditions have materially changed. Regulatory friction is structurally embedded. Geopolitical uncertainty has moved from theoretical to operational. The cost base no longer reflects the assumptions it was built on. Demographic shifts and ownership transitions are introducing new categories of supplier-level disruption.
The right work today isn't withdrawal. It's deliberate exposure management — understanding where concentration is strategic, where it's tolerable, and where it should be reduced.
Since China's WTO accession in 2001, the country has undergone one of the fastest economic transformations in modern history. GDP per capita has risen more than fourteen-fold since the early 1990s. The workforce is older, more educated, and more expensive. These changes are structural, not cyclical — they will persist long after trade policy and currency cycles play out.
For supply chain leaders, the most important shift is the one China itself has acknowledged: China is no longer a developing nation. China must now be managed accordingly. This calls for a different operational discipline.
The micro-level cost drivers compound the macro picture. Staffing levels in China-based sourcing and procurement organizations have remained largely unchanged despite declining import volumes. Years of "throwing people at problems" during the era of cheap labor — combined with sustained wage inflation — have left many companies carrying procurement cost structures materially higher than required. Supplier accountability has lagged. Inefficient, human-centered management processes that made sense when labor was cheap are now expensive and unscalable.
Foreign companies in China now face more consistent and enforceable regulation across taxation, environmental compliance, data security, and ESG reporting. US lawmakers have layered on tariffs, the Uyghur Forced Labor Prevention Act, and semiconductor export controls. The net effect: regulatory complexity is increasing, enforcement intensity is rising, and cross-border friction is structurally higher than in previous decades.
Taiwan remains the highest-severity flashpoint. China's tensions with Japan and India introduce additional, lower-probability but still disruptive scenarios. Exposure is not uniform across companies; it is determined by revenue mix, production footprint, and dependency concentration.
China is now facing structural headwinds — slower growth, elevated debt, real estate volatility. The most practical risk for foreign companies is supplier solvency. Financial transparency among mid-sized Chinese manufacturers is limited, making early signs of distress hard to detect. One week, engineers are reviewing tooling modifications; the next, the factory gates are locked. Importers are scrambling to requalify tooling elsewhere.
China's competitive advantage in labor cost is eroding — wage inflation, demographic contraction, and rising alternatives like India and Vietnam are narrowing the case for single-country concentration. Many privately owned manufacturers are also undergoing generational ownership transition, where successor priorities can shift from operational expansion to asset monetization. In urbanizing regions, underlying land values can exceed the operating value of the manufacturing business — increasing the probability of plant closures driven by real estate, not operating distress.
A 30-minute working session with one of our principals. Bring your current China footprint and category mix and we'll map your exposure across the four risk dimensions — and where the recalibration levers actually are. No RFP process required.