Why UK Companies Need a China Strategy — Even If It Is Caution
The Strategic Imperative
China represents a strategic question that no UK company with international exposure can afford to ignore. Whether a company sells into China, sources from China, or competes against Chinese firms, the trajectory of UK-China relations will materially affect its business over the coming decade.
The UK Government's Integrated Review describes China as an 'epoch-defining challenge' — a formulation that captures the complexity of a relationship that is simultaneously competitive, cooperative, and confrontational. For UK businesses, this complexity demands explicit strategic consideration rather than the drift that has characterised many companies' China positioning.
The Risk Landscape
UK companies with significant China exposure face a range of risks that have intensified in recent years. Regulatory risk has increased as both the UK and Chinese governments impose new restrictions on technology transfer, data flows, and investment. Geopolitical risk — particularly around Taiwan — creates scenarios in which trade disruption could occur rapidly and with little warning.
Reputational risk is also growing. UK consumers and investors are increasingly sensitive to supply chain connections with regions where human rights concerns have been raised. Companies that fail to demonstrate awareness and management of these risks face pressure from stakeholders.
However, the risks of disengagement are equally significant. China represents the world's second-largest economy and is the dominant market in numerous sectors. UK companies that withdraw entirely risk ceding market position to competitors — including European rivals — who maintain engagement.
Three Strategic Postures
UK companies are broadly adopting one of three strategic postures toward China. The first is continued engagement with enhanced risk management — maintaining Chinese operations and trade relationships while building contingency plans and diversifying supply chains. This is the most common approach among FTSE 100 companies with significant Chinese revenues.
The second posture is managed diversification — maintaining existing Chinese business while systematically building alternative capabilities in other markets. This approach acknowledges that China remains important today while reducing dependency over time. Companies adopting this posture are investing heavily in India, Southeast Asia, and other growth markets.
The third posture is strategic withdrawal — reducing China exposure to minimal levels in anticipation of further geopolitical deterioration. This approach is most common among companies in sensitive sectors (technology, defence, critical infrastructure) where regulatory pressures make continued engagement impractical.
Scenario Planning for Geopolitical Disruption
Whatever strategic posture a UK company adopts, robust scenario planning is essential. Companies should model the financial and operational impact of various disruption scenarios — from targeted trade restrictions to broader geopolitical crises — and develop response plans for each.
The companies best prepared for geopolitical disruption are those that have already diversified their supply chains, built relationships with alternative suppliers, and maintained the financial flexibility to absorb short-term disruption while adapting their strategies.
Board-Level Responsibility
China strategy is a board-level issue that should not be delegated to regional management or external affairs functions. The strategic, financial, regulatory, and reputational dimensions require integrated consideration at the highest level of the organisation.
UK boards should ensure they have adequate geopolitical expertise — whether through board composition, external advisers, or structured scenario planning processes — to make informed decisions about China positioning. The cost of getting this wrong, in either direction, is significant.