The trickle of companies leaving China is becoming a flood

Relations between Washington and Beijing began deteriorating during Trump’s first term – Kevin Lamarque/Reuters

In the context of a sprawling global leviathan that has just posted profits of $7.7bn (£6.1bn) in the last three months alone, Shell’s decision to close a small power generation unit in China amounts to little more than a rounding error on its books.

The company made just $227m in China last year compared with $1.8bn in the UK, and it’s not even close to representing a full exit from the world’s second largest economy.

Though the divisions that generate green power and trade in low-carbon electricity are being cut adrift from the mothership, Shell will retain an electric vehicle charging operation, five lubricant blending plants and one grease production plant. It also remains one of the country’s big suppliers of liquid natural gas.

What’s more, it probably says more about Shell’s struggle to make money from clean energy projects, and a broader scepticism under boss Wael Sawan about the embrace of net zero, than it does about its commitment to China.

Nevertheless, the direction of travel is unmistakable: once regarded among Western multinationals as the great business opportunity of this century, foreign businesses are pulling out of the country in growing numbers.

The danger for China is that what started as a trickle may quickly become a flood – if it hasn’t already. The list of major companies heading for the exit may be greater than those still operating in China.

As news of Shell’s partial retreat became public, top US lawyer Mayer Brown was reportedly putting the finishing touches to working a plan to offload its Hong Kong, Shanghai and Beijing offices – the latest big law firm to revisit the realities of doing business in a country where regulation, including new anti-espionage, data privacy and cyber security laws, is becoming even tighter.

They join a swell of big Western corporations including Stanley Black and Decker, Apple, Nike, Blackrock and Samsung that have stepped back from the People’s Republic, whether because of escalating geo-political tensions with the West, concerns over human rights abuses, intellectual property theft or the dismantling of freedoms in Hong Kong.

As China’s economy has faltered, foreign investment has tumbled to a 30-year low. The spectacular collapse of property giant Evergrande, which promises to leave scores of Western creditors nursing huge losses, has done further damage to confidence among overseas investors.

Fast forward a few years into the future and it isn’t that hard to picture Elon Musk, the planet’s most prominent self-proclaimed freedom-loving arch capitalist, as the lone Western business figure still kowtowing to China’s oppressive regime long after everyone else has scarpered.

The spectacular collapse of Chinese property giant Evergrande has damaged confidence among overseas investors – STR/AFP via Getty Images

Anyone else with an ounce of sense has surely seen enough to conclude that it would be wise to get out of China now before things get really messy. If Xi Jinping follows through on a threat to unite Taiwan with the mainland by force – something top US generals believe is increasingly likely – then a blitz of severe economic, trade and financial sanctions will surely follow, and what has been seen as a relatively orderly decoupling between the West and China will quickly turn into a vicious rupture.

This is particularly the case if Donald Trump is elected to the White House for a second time. Though relations between Washington and Beijing began deteriorating during Trump’s first term, they have continued to worsen under Joe Biden primarily as a result of deepening ties between China and Russia since the invasion of Ukraine.

America’s decision to impose sanctions on more than a dozen companies in China and Hong Kong for their support of Vladimir Putin’s war is a shot across the bows of the Chinese regime. If the White House follows through with a threat of sanctions on the Chinese banks facilitating trade in vital military goods with Russia that would be seen as a serious escalation.

But it’s the return of Trump that Beijing fears the most. The massive tariffs he has threatened to impose on China if re-elected would eviscerate trade between the two superpowers, analysts warn.

The prospect of Trump’s return to the White House is striking fear in Beijing – DOUG MILLS/POOL/AFP via Getty Images

As the US elections draw nearer, Western companies will surely weigh up the pros and cons of doing business in China, and conclude that an orderly departure is far more preferable than the chaos that Trump 2.0 promises to unleash.

Amid this rapidly emerging reversal, it is incumbent on Labour to articulate what its position on UK-Sino relations is. The Tories have performed so many flip-flops on the issue over the last decade and a half that you’d be hard-pushed to find a senior minister capable of explaining what the current stance is.

What matters more – if the polls are to be trusted – is the approach that the government-in-waiting will adopt towards one of the great geopolitical challenges of our times. Shadow foreign secretary David Lammy has promised a “full audit of the UK-China relationship”, and said China poses a “challenge”, rather than a “threat”.

That’s not quite as vague and contradictory as the Prime Minister’s call for “robust pragmatism” towards Xi Jinping’s regime. But nor is it the sort of assertive approach demanded after Lindy Cameron, boss of the National Cyber Security Centre, warned that an “increasingly authoritarian” Beijing represents a “systemic challenge” to almost every aspect of government policy and the everyday lives of British people.

As Labour prepares for office, the drumbeat of companies escaping from China will only grow louder. Ambiguous rhetoric is not going to cut it.

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