(Jan 9): Some European firms are sacrificing efficiency and losing their global edge as they wall off their operations in China and come under pressure to produce more locally, according to a business group whose members include many of the continent’s biggest companies.

Motivation for what the European Union Chamber of Commerce in China terms “siloing” stems from a desire to meet the country’s regulatory requirements and be recognised as a trusted local supplier, rather than commercial considerations. Among companies that rely on China for 30% or more of their global sales, 86% have “significantly” localised supply chains, the group said in a report published Thursday.

“Some European Chamber members have invested considerably in this process so that they now resemble Chinese companies in all but name,” it said. “They have localised their supply chains, workforce, sales and procurement functions, and have siloed their research and development, data and information technology systems.”

Companies are being forced into tough choices at a time when economic rivalries look set to intensify with Donald Trump’s return to the White House later this month and as nations around the world promote self-sufficiency. Foreign investment into China slumped to fresh lows last year as a result of geopolitical tensions, pessimism about the world’s second-largest economy and stronger competition from local firms.

The trade-off for some European companies in China has been increased inefficiency and higher costs caused by duplicating operations, rising global compliance risks and a loss of competitiveness, according to firms surveyed by the EU association.

Respondents cited challenges in adhering to Chinese standards and “buy China” policies — as well as local production requirements — among top reasons for losing business opportunities in the country over the past two years.

The European group also found one effect of staff localisation was an erosion of trust between China-based subsidiaries and company headquarters, leading to obstacles in capitalising on new projects and investments.

The EU chamber’s online survey was conducted during August and September last year with 128 respondents.

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