U.S.-China Business Risks Are Escalating
Is Your Business Prepared for the Ongoing U.S.-China Tensions?
For years, American companies believed that strong economic ties with China could shield them from political fallout. This assumption gave businesses a false sense of security, one that has now shattered under the weight of escalating geopolitical tensions.
Doing business in or with China has become increasingly risky. From tightening trade restrictions to sweeping legal changes, the landscape is more volatile than ever. If your company operates in China, sources materials from Chinese suppliers, or partners with Chinese entities, you must act now to protect yourself, your business, and your employees from potential fallout.
Too many companies remain narrowly focused on tariffs, while overlooking the far more dangerous—and escalating—legal, regulatory, and geopolitical risks of doing business in or with China,
It's time to plan for the worst, even as you hope for the best. Here's what you need to know and do to mitigate these growing risks.
The End of the "Business as Usual" Assumption
Many U.S. companies once believed that regardless of political tensions, economic interdependence would ensure stability. This belief no longer holds true. Recent developments reveal that businesses are no longer immune to geopolitical shifts. Key examples include:
1. Tighter Export Controls
The U.S. has implemented strict regulations on the export of critical technologies like semiconductors, AI chips, and advanced manufacturing tools to Chinese companies. In response, China has imposed its own export restrictions, primarily targeting critical minerals and materials essential for various U.S. industries, as well as specific dual-use items.
2. Outbound Investment Restrictions
U.S. investors face new barriers and scrutiny when placing capital in sectors critical to China's advanced technologies.
3. China's Widening Counter-Espionage Law
Activities like market research and corporate due diligence, once routine, are now at risk of being labeled as "espionage."
4. Increasing Use of Exit Bans
China's authorities have imposed exit bans on foreign nationals, barring some people from leaving the country even without formal charges.
5. Data Localization Laws
Chinese regulations now require companies to store any data collected in China within its borders. This makes data fully accessible to the government.
6. Anti-Foreign Sanctions Law
China's Anti-Foreign Sanctions Law provides a legal framework for Beijing to retaliate against foreign entities that take measures deemed harmful to China's interests.
These policies, designed to bolster China's control over its economy and foreign influence, leave businesses operating in China deeply exposed.
Lessons From Russia's Playbook
To understand what might come next with China, consider Russia's recent actions following its invasion of Ukraine. When relations with the West deteriorated, foreign companies in Russia faced immediate disruptions, including:
- Asset expropriations without compensation.
- Bank accounts frozen overnight, rendering funds inaccessible.
- Executives detained or prevented from leaving the country.
- A total collapse of legal protections for foreign stakeholders.
China is paying close attention to these events, learning how to leverage its own legal frameworks for similar retaliatory methods. With tools like the Exit Ban Law, the Counter-Espionage Law, and the Anti-Foreign Sanctions Law, China is well-positioned to implement drastic measures against American businesses and individuals when geopolitical conflicts escalate.
Companies doing business in or with China must now prepare for scenarios such as:
- Arbitrary enforcement of ambiguous national security laws.
- Forced transfer of proprietary technologies or IP.
- Sudden regulatory actions targeting foreign businesses in sensitive sectors.
- Legal disputes with no realistic chance of resolution in Chinese courts.
- Employees being detained or restricted from leaving the country.
Ignoring these risks could lead to severe legal, financial, and personal repercussions.
Last week, a long-time client asked whether their NNN Agreement with a Chinese manufacturer was still valid. I told them yes—the agreement remains legally valid—but I could no longer say with confidence that a Chinese court would enforce it to protect their IP as reliably as it might have five years ago.
That question opened the door to a broader discussion about risk mitigation. In particular, we explored whether it now makes sense for the client to establish a new legal entity in a jurisdiction like Panama or Singapore—one that would serve as the official party conducting all business with China moving forward. We've been helping companies from countries outside the United States do this kind of "nationhood change" for years.
My firm has assisted a number of Eastern European companies in "converting" into American entities to strengthen their bids for large international construction contracts. I never imagined I'd see the day when American companies would ask how to convert into foreign entities—just to avoid the challenges that now come with being American in certain markets.
The goals behind these conversions are typically twofold:
- To create a degree of legal and operational separation between the U.S. entity and direct engagements with China.
- To access jurisdictions with more favorable legal frameworks and dispute resolution mechanisms.
In today's climate of escalating geopolitical tensions and shifting legal norms, strategies like these are no longer fringe—they're becoming essential.
A Checklist for Mitigating China Risks
If your business relies on China in any capacity, proactive preparation is critical. Here's a step-by-step guide to help you safeguard your operations and employees.
1. Reassess and Strengthen Risk Management
- Conduct thorough enterprise risk assessments that incorporate geopolitical, regulatory, and legal risks.
- Evaluate every aspect of your operations, from supply chains to human resources, to identify potential vulnerabilities.
2. Protect Your Data and Intellectual Property
- Conduct a full data audit to ensure compliance with China's Personal Information Protection Law (PIPL) and Data Security Law (DSL).
- Minimize the amount of sensitive or proprietary information stored in China to protect it from government access.
3. Establish Crisis Protocols for Your Company's Personnel
- Develop comprehensive security protocols for employees working or traveling in China. This should include emergency legal representation, crisis communication plans, and detailed evacuation procedures.
- Reduce non-essential travel to China for U.S. citizens, particularly executives and key personnel, to minimize exposure.
4. Strengthen Your Contracts
- Review all of your contracts associated with China-related operations to determine what needs to be modified to fit current realities.
- If possible, change your contracts to reduce your company's China footprint
5. Inventory and Safeguard China-Exposed Assets
- Create a register of all tangible and intangible assets exposed to Chinese operations. This includes trademarks, trade secrets, and manufacturing equipment.
Develop strategies to relocate assets or duplicate critical tools outside of China when possible.
China Risks Are Personal Risks
U.S. citizens working, investing, or traveling in China face increasing legal vulnerability. Just about every week, someone asks us about the personal risks involved in taking a short business trip to China or accepting a job there. See How to Assess Your Personal China Risks.
Our law firm has been providing Risk Assessment Packages for both companies and individuals for nearly two decades. In the past, nearly every assessment was requested by someone looking for reassurance—hoping we'd confirm it was safe for them to go to China. Now, more and more clients are coming to us hoping we can help them justify not going at all.
Under China's amended Counter-Espionage Law, activities like corporate due diligence, academic collaboration, or compliance audits could now be interpreted as "espionage." In such cases, due process is minimal, state security overrides legal protections, and access to consular support can be inconsistent.
The use of exit bans–imposed without clear justification or advance notice–has expanded. Chinese courts are not required to convict—or even formally charge—someone for an exit ban to take effect. If your company is involved in a dispute with a Chinese entity, our advice is usually not to send any employees to China while that dispute remains unresolved.
If your business has unresolved conflicts with Chinese entities, or if you're engaged in sensitive sectors, sending employees to China could expose them to detention or severe legal consequences.
The risk is no longer just to corporate bottom lines—it's to individuals.
Lighten Your China Footprint
The overwhelming majority of our clients that still do business in or with China are no longer wondering whether to reduce their exposure—they're deep into the process of doing so. In 2022, we wrote a blog post entitled Your Company and China: Should You Divest, Decouple, or Double-Down? in which we discussed the benefits of lightening your footprint in China.
Today, we're seeing a clear and widespread trend: lightening the China footprint. What that means in practice varies, but the direction is unmistakable.
Many of our clients have already:
- Shut down their Hong Kong offices, having come to the conclusion—rightly—that Hong Kong now offers only marginally more legal or political protection than the Mainland.
- Removed key personnel from both Mainland China and Hong Kong to minimize individual exposure to legal risk, exit bans, or sudden regulatory crackdowns.
- Transferred their IP—in some cases, urgently—from Chinese entities to subsidiaries in more stable jurisdictions like the U.K., France, or Mexico.
- Converted their business models from owning and operating in China to working with local licensees, distributors, or joint ventures with strong contractual protections.
The conversations we're having with clients today are telling. Multinationals no longer ask us, "Should we reduce our China risk?" They're already doing it. Their questions are more about confirming what they've done or asking us to stress-test their remaining exposure.
Mid-sized companies are usually in transition. They want to know how to reduce their risks, and they also ask for introductions to experts—whether that's a supply chain strategist, a data compliance consultant, or someone who can help move tooling or IP.
Smaller companies tend to lean most heavily on us. They usually don't have in-house lawyers or security teams. They're looking for practical, end-to-end guidance on how to reduce their China footprint with limited resources and real constraints.
Whether companies are trimming back sourcing, divesting their Chinese operations, or converting to an indirect market strategy, the goal is the same: stay in the game without getting caught in the crossfire of politics, regulation, or geopolitical volatility.
Different Approaches for Different Company Sizes
The implementation of these risk mitigation strategies will necessarily vary based on your organization's size and resources.
When it comes to China risk, size matters. The way a Fortune 50 company navigates China is very different from how a 10-person e-commerce firm does—and we work with both.
What works for one may be impossible or unnecessary for another, which is why risk mitigation strategies must be tailored to match a company's resources, structure, and priorities.
For Large Multinationals:
These companies usually have in-house legal, compliance, and risk teams—and sometimes entire departments focused on China. Their strategies tend to include:
- Diversifying manufacturing and supply chains across multiple countries.
- Compartmentalizing China operations through legal structures and internal firewalls.
- Conducting regular geopolitical risk assessments, often with our firm reviewing those annually.
- Shifting toward asset-light models, like licensing or distribution-only approaches, to reduce exposure without leaving the market entirely.
For Mid-Sized Companies:
These firms tend to be more exposed than they'd like to be but still have room to move. They often:
- Seek targeted advice on how to protect their IP, move their data, or exit a risky joint venture.
- Ask for referrals to specialists in areas like logistics, HR compliance, or financial controls.
- Rely on outside legal and consulting firms to fill the expertise gaps without needing full-time staff.
For Small Businesses and Startups:
These companies often fly solo. Many of them:
- Operate with DIY strategies, using online suppliers or platforms with little on-the-ground presence.
- Are the most exposed without realizing it—particularly to IP theft or payment risk.
- Ask for step-by-step guidance, and we help them put guardrails in place that are affordable and effective.
- Often benefit from licensing or agency arrangements that give them market access without physical or legal presence in China.
We understand the constraints and pressures facing each of these tiers. That's why our guidance is always tailored—not just to a company's legal exposure, but also to its capacity to act.
Conclusion: Hope Is Not a Strategy
While this post emphasizes the escalating risks of doing business in or with China, it's important to recognize that some companies still operate there with relative success. Businesses with long-standing local ties, those in strategically favored sectors like advanced manufacturing or green technologies, or firms with influential local partners may encounter fewer immediate challenges. Yet even these seemingly stable positions are increasingly vulnerable as the geopolitical landscape shifts—often without warning.
U.S.-China relations are not simply in decline; they are undergoing structural deterioration. The legal and strategic environment is growing more nationalistic, more volatile, and more antagonistic with each passing month.
For American businesses and citizens, the old assumptions—neutrality, pragmatism, and the notion that commerce transcends politics—no longer hold. Geopolitical conflict now carries legal, operational, and even personal consequences. To confront this new reality, your business must act—not hope. That means:
- Consult Legal and Geopolitical Experts: Understand your specific vulnerabilities and build an informed strategy.
- Practice Vigilant Risk Management: Reassess your risk exposure, fortify your data and personnel protections, and stay ahead of regulatory threats.
- Plan for Worst-Case Scenarios: Develop contingency plans for sudden disruptions affecting your people, partners, or assets in China.
The cost for American companies doing business in or with China now includes the risk of becoming a pawn in a much larger geopolitical game. Is it time for your U.S. business to be doing its China business as a Panama or Singapore company?
Hope is not a strategy—and in today's China, it's a liability.
Protect Your Business By Reducing Your China Risks
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