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KSG Exec Brief: China Plus One, Where The Bottom Line Meets the Nine-Dash Line
Geographic diversification, geopolitical risk, and enterprise considerations
Many businesses are leaning into a "China Plus One" strategy as a calculated pivot, balancing operations in China while exploring options elsewhere in Asia to mitigate risks from trade disputes, increasing costs, policy uncertainty, and supply chain interruptions. For senior executives, this calls for skillful navigation through changing digital regulatory frameworks, different infrastructure and talent challenges, and remaining alert to evolving regional cyber and geopolitical risks for sustained resilience and adaptability.
A recent Bloomberg study found that S&P 100 CEOs are using the term “geopolitics” three times more than they did just two years ago in discussing their businesses. More than talk, many business are also now speaking with their money and and feet, pulling investment and shifting enterprise footprints. US investments in China plunged 57.9% since 2020. In the past year, $180 billion in foreign direct investment moved from countries that declined to condemn Russia’s invasion of Ukraine to those that did.
However, “breaking up with China is hard to do”, as many critical supply chains are too difficult to replace and the large mainland market is too attractive to abandon. There is no easy answer as multinationals navigate an increasingly fractured regulatory ecosystem and the creep of geopolitics into everyday business decisions.
The landscape of competing national digital policies – such as data localization, internet sovereignty, and privacy laws – make cross-border business operations and geographic diversification more complex. Meanwhile, middle powers look to play great powers against each other to extract geopolitical favors while smaller countries are increasingly forced to pick a side and choose which techno-economic bloc to align with.
This changing geopolitical and economic dynamic — and the opportunities and risks for MNCs — is no better seen than in Southeast Asia, especially Vietnam.
New Economies, New Opportunities
President Biden’s visit to Vietnam marked a new milestone in a budding relationship. As “Comprehensive Strategic Partners,” the two countries aim to cooperate on technology development and manufacturing supply chains. The US is already Vietnam’s top export market. Strong US-Vietnam relations is welcome news for companies looking to de-risk from China.
A main beneficiary of the ‘China +1’ model, Vietnam is attracting many MNCs, given its young population, 94% literacy rate, and strong work force. MNCs have already begun moving some manufacturing to Vietnam, attracted by lower costs and lower risks from US-China tensions and trade wars.
However, the China +1 model is not without risk. Vietnam sits in a strategically precarious place with China. Situated along the South China Sea, it has long disagreed with China’s territorial claims and military aggression. Despite these tensions, President Xi Jinping met with Vietnamese PM Pham Minh Chinh in June to celebrate 15th anniversary of their comprehensive strategic cooperative partnership, which has focused on BRI and green energy development.
Vietnam’s relationship with China also creates risks. On its own, operating in Vietnam may increase threats from weak digital infrastructure, added complexities of local 3rd party providers, and increased insider trust challenges. However, Vietnam has also been at the mercy of CCP meddling, Chinese cyberattacks, and economic coercion. Balancing relationships between the US and China presents unique security challenges for Vietnam and countries like it.
No recent story better shows the complex, multipolar dance of great power influence bidding than the fact Vietnam was apparently negotiating a secret Russian arms deal. The deal sought by Vietnam tries to procure Russian arms while also seeking F-16 jets from the U.S., in violation of US sanctions.
Vietnam is one in a set of emerging countries simultaneously developing relationships with the US, China, and Russia. These countries may represent safer business opportunities as countries diversify from China, but they still possess inherent risks. As they consider or expand regional operations, companies need to look at each countries’ digital regulations and political activity to continually assess changing cyber and geopolitical risks.
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US, EU Leaders Plan for October Summit: The agenda for the Washington DC convening reportedly aims to settle trade disputes on steel and aluminum tariffs, as well as critical minerals.
Companies Bemoan China’s Worsening Business Environment: Curbs on cross-border data transfers, executive exit-bans, and security raids are on the rise, as pessimism about the operating environment among businesses hit a five-year high.
US, Central Asia Set for New Era of Relations: President Biden’s recent C5+1 summit was the first such meeting in the post-Soviet era, setting the stage for a new more focus on mutually beneficial business and trade partnerships – particularly on energy and transportation infrastructure projects.
Joint US-Japan Advisory on Router Firmware Exploit: China-linked cyber actors can modify router firmware undetected, leveraging routers’ domain-trust relationships to pivot from international corporate subsidiaries to targeted headquarters – primarily in the US and Japan.
DHS Outlines Single Reporting Platform for Cyber Incidents: The agency aims to harmonize a patchwork of reporting requirements, adopt common lexicon and definitions, and minimize duplication—while still servicing sector-specific needs.
Canada-India Diplomatic Row Spills into Cyberspace: The Canadian government’s cyber authority called for IT administrator vigilance, after a purported India-based group threatened cyberattacks related to Ottawa’s allegations that Delhi may have been behind the assassination of a Canadian activist.
Strategic and Emerging Tech
European Satellite Providers to Merge Amid Starlink Dominance: French Eutelsat and UK’s OneWeb will combine their constellations of low-earth and geostationary vehicles, heating up the competition for space-based communications. The global industry is slated to nearly double in value by 2040 to more than $1 trillion.
China Boosts Rare-Earths Production: Beijing has ramped up its 2023 production-quota by 14 percent over 2022, aiming to bolster its booming electric vehicle industry. Quotas for elements upon which the US and Japan depend, however, remained unchanged.
Researchers Create Gel-Based De-Humidifier: The method pulled water-vapor from the air at temperatures low enough to be achieved with sunlight – putting energy-efficient, atmospheric water-harvesting within closer reach.
US Regulators, Cloud Providers Clash on Draft Rule: A planned “Know Your Customer” requirement—aimed at minimizing illicit cyber actors’ anonymous use of leased infrastructure to conduct attacks—is generating backlash from major providers, who deem the rule onerous and likely counterproductive.
US Aims to Reintroduce Net Neutrality Rule: The move would reverse the Trump administration’s rollback of curbs on internet service providers’ ability to block, throttle, or grant favored access to specific types of websites and online content.