The China exposure every CEO must address

Most Western executives think their exposure to China begins and ends with the question of whether they buy from or sell to Chinese companies. They are wrong. China’s capacity for innovation, its manufacturing dominance, and its geopolitical influence are changing the competitive landscape that all businesses operate in. Even when Chinese companies aren’t swimming in your part of the ocean, the country’s policies and priorities have a direct impact on the water.

The facts are undeniable. The research institute Rand Corp. estimates that Chinese AI models now operate at one-sixth to one-fourth the cost of comparable American systems, and a U.S. advisory commission warned this week that Chinese AI now dominates global open-source usage rankings. But artificial intelligence is only one expression of a broader shift. The same country that is closing the AI gap also manufactures over 80% of the world’s batteries, builds more commercial ship tonnage in a single year than America has since World War II, and is rapidly becoming the partner of choice for countries looking for an alternative to an increasingly unpredictable United States.

These forces—innovation, industrial capacity, geopolitical realignment—are reshaping the operating environment for every company, including those that don’t trade with China at all. Business leaders who want to prepare their organizations for this changed world need to start by understanding these three fundamental forces and their effects.

The innovation myth is dead

For decades, the comfortable Western narrative held that China could manufacture but couldn’t innovate—that it could copy but never create. That narrative is false, and has been for a while.

In AI, Chinese models have moved from trailing U.S. frontier systems by double digits on standard benchmarks to near-parity, and they deliver these results at a fraction of the cost. Lee Kai-fu, founder of the Beijing startup 01.AI, told Reuters the gap had narrowed to three months in some core technologies, and that China was now ahead in certain areas. Nature describes the Kimi K2 model by Moonshot AI as “another DeepSeek moment,” matching or surpassing some Western rivals on specific tasks.

When it comes to electric vehicles, the transformation is even more vivid. BYD’s Yangwang U8 is an SUV that literally floats and can park sideways like a crab. The company’s Denza Z9GT model charges from 10% to 70% in five minutes and has a range of 800 kilometers. BYD sold over 417,000 vehicles overseas in 2024, aimed for 800,000 in 2025, and ended up selling more than a million. These aren’t cheap knockoffs. They are better products at lower prices.

None of this means the old problems have disappeared. A report by the Office of the U.S. Trade Representative confirms that effective remedies for trade-secret theft remain difficult in China. Academic misconduct is real enough that Beijing itself is now moving to punish universities that fail to sanction research fraud. But here’s the point most Western leaders miss: China is so vast that it doesn’t need the whole system to be world-class. If even 20% of its innovation economy is operating at the frontier, that’s a force larger than most countries’ entire output. And the trajectory is moving in one direction.

The supply chain you don’t see

Even executives who don’t buy from or sell to China are exposed to its industrial dominance in ways they may not understand. The United States produced around 10 ocean-going commercial vessels in 2024. China produced more than 1,000 and now controls the world’s largest merchant marine fleet. That is quite a gap, and it reflects something qualitative—control over the physical plumbing of global trade. And shipbuilding is just one example of a pattern playing out across critical infrastructure—from ports to cranes to telecommunications equipment.

The dependency runs deeper than physical infrastructure. For 19 out of 20 important strategic minerals, China is the leading refiner, with an average market share of 70%. More than 90% of battery-storage applications rely on lithium iron phosphate (LFP) batteries that are almost exclusively supplied from China. Nearly all batteries used for power grids depend on China for at least one step in the supply chain. Even firms that think they are not exposed to China often discover that the vulnerability sits a tier or two upstream.

This supply chain exposure is growing, thanks to a predictable, repeating pattern. Beijing identifies strategically important sectors and directs massive investments into these areas. Chinese manufacturers rush to compete, leading to overproduction. Global prices collapse, non-Chinese competitors can’t survive at those margins, and within a few years, China is the dominant—or only—supplier left. That is how solar went from a competitive global market to one in which China controls over 80% of every major manufacturing stage. Indeed, so extensive was Chinese investment that in August 2025, the Chinese government encouraged firms to reduce production and eliminate overcapacity, because China was on track to produce roughly twice the solar cells the world was forecast to buy in 2025.

Geopolitical shifts

The third force might be the hardest for many Western business leaders to absorb: the geopolitical center of gravity is moving. The current U.S. administration has directed withdrawal from 66 international organizations, following earlier exits from the World Health Organization (WHO) and the Paris Agreement on climate change. In the resulting vacuum, countries are turning to China. Canada agreed to slash EV tariffs from 100% to 6.1%, with Prime Minister Mark Carney calling ties with China “more predictable.” When British Prime Minister Keir Starmer visited Beijing in January, Reuters described a broader “pivot to China” that was gathering pace, with investors saying Beijing could offer “predictability and certainty” when the U.S. feels more uncertain. Meanwhile, China and Iran have built a yuan-denominated trading system that sidesteps the dollar entirely—one small piece of a de-dollarization trend with implications far beyond the oil market.

Let’s be clear: This is a reluctant embrace, not an enthusiastic one. The Human Rights Watch organization documents China’s systematic denial of freedoms of expression, association, and religion. Another watchdog group, Freedom House, rates China 9 out of 100 for political rights and civil liberties, giving it a categorical “Not Free” status. Countries are being pushed into China’s arms, not jumping willingly. But perception shapes markets as much as principle does, and right now, China looks stable, predictable, and oriented toward long-term outcomes at a moment when America looks like none of these things.

What a CEO Needs to Do

None of these forces are within a CEO’s control. But what business leaders can do is develop strategies for navigating a world that these forces shape. Here are five things to do now.

1. Map your actual exposure. Most companies have no visibility beyond their tier-one suppliers. That means they literally cannot see where their China dependence lies. McKinsey & Co.’s supply chain risk survey found that 82% of companies were affected by the new U.S. tariffs in 2025—and many didn’t see it coming. Before you can make any strategic decision about China, you need to know where China already sits inside your business. If you can’t map it, that is the first problem to solve.

2. Use China’s own plans as forward intelligence. China’s policy announcements are the most underused source of competitive intelligence available to Western business leaders. The 2026–2030 five-year plan is not a vague aspiration document—it is a procurement directive that triggers mandatory coordination across every central ministry, provincial government, and state financial institution.  

3. Diversify at the structural level. Build a portfolio of suppliers, not a dependency on one or two; build a portfolio of markets instead of betting on one geographical region. The point is not to eliminate exposure to China, but to be intentional about spreading the risk. The companies that have thrived globally—such as Apple, Nvidia, and the NBA—haven’t decoupled from China. They have diversified around it while remaining deeply engaged.

4. Protect what is yours, but don’t close the door. If you create intellectual property of any kind, the U.S. Trade Representative’s findings make clear that protection in China remains difficult. Treat IP security as a core operational discipline, not a legal afterthought. China is also tightening its own trade-secret regulations—which creates both additional protections and obligations. But protection isn’t a strategy if it becomes a reason to ignore innovation happening elsewhere. The companies that reflexively reject Chinese technology because it’s Chinese will find themselves paying more for less while competitors adopt what works regardless of origin.

5. Reject the binary. The world that is forming is not one of cleanly delineated blocs. It is a world of partial bifurcation, selective interdependence, shifting regulation, and overlapping spheres of interest. Your strategy needs to operate across that reality, not pretend that it will resolve itself into something simpler.

The bottom line

China is not an easy partner, a trustworthy actor on intellectual property, or a country whose values most Western business leaders share. But it is the largest manufacturing economy on earth, it’s innovating at speed, and it’s filling the space that America is vacating.

You do not have to like it, but you do have to plan for it.