The study measures firm exposure using real operating linkages, how much a company imports from China-linked affiliates and how deep its FDI footprint is, and shows that higher China-GPR exposure raises the likelihood of firms diversifying import sources and adding manufacturing affiliates in ASEAN. The effect is meaningful: a one-standard-deviation increase in exposure lifts the probability of import diversification by roughly 1 percentage point, a big jump against a low base rate.

But the headline takeaway for CXOs is what doesn’t happen: there’s limited evidence of wholesale relocation (closing China plants and shifting everything to “friend-shored” sites). The drag is structural,sunk capex, supplier density, skills, and operational know-how embedded in China make full exits expensive and risky. So firms choose a middle path: regional diversification to build resilience without detonating cost structure.

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