British engineering firm IMI said it was diversifying its supply chain outside of China in response to deteriorating international relations.
CEO Roy Twight said the FTSE 250 business, which manufactures parts for the energy and transportation sectors, will focus its manufacturing in China on parts for domestic customers.
“Our principle towards China is: China for China,” he said. “We are investing in China for the Chinese market and making sure that if things go in the wrong direction in terms of geopolitics, the business as a whole is as resilient as possible.”
This IMI move is the latest sign that the business Rethinking its dependence on China as a manufacturing hub after the country’s strict Covid restrictions and how geopolitical tensions and concerns about free trade and supply chains continue to grow.
Twight said IMI generates 9 percent of sales in China but only manufactures 5 percent of its goods there, adding that the group will invest in manufacturing to meet demand in the country.
At the same time, it seeks to reduce its global supply chain’s dependence on China. After Western governments imposed wide-ranging sanctions on Russia following its invasion of Ukraine, many companies questioned the possibility of imposing similar restrictions on China if it targeted Taiwan.
Twight said he did not expect any sanctions against China to be as harsh, in part because trade and financial flows between China and the West are so high.
But he said that IMI, which lost £9m from leaving Russia, was looking to source goods closer to home, adding that the company was expanding a factory in the Czech Republic.
Its results on Friday showed that the company benefited in the short term from the effects of the Russian invasion.
Sales rose 10% to £2bn in the year to December and profit before tax increased 13% to £346m.
Twight said the company’s growth, which makes products including valves for liquefied natural gas producers, was driven in part by countries’ desire to develop alternative energy sources.
“A lot of gas would go to Europe through Russian pipelines. Obviously there is a desire to make sure that Europe has different suppliers,” he said. “[In the US and the Middle East] they are expanding their capacity, their ability to export, to meet this new demand.”