UK engineering business IMI has said it is diversifying its supply chain away from China in response to worsening international relations.
Chief executive Roy Twite said that the FTSE 250 business, which produces parts for the energy and transport sectors, will focus its China manufacturing on producing parts for domestic customers.
“Our principle on China is: China for China,” he said. “We’re investing in China for the Chinese market and making sure that if things develop in the wrong direction, in terms of geopolitics, that actually the overall business is as resilient as it can be.”
The move by IMI is the latest sign that businesses are rethinking their reliance on China as a manufacturing hub after the country’s strict Covid lockdowns and as geopolitical tensions and worries about free trade and supply chains continue to grow.
Twite said IMI generates 9 per cent of sales in China but produces only 5 per cent of its goods there, adding the group will invest in manufacturing to ensure it can meet demand in the country.
At the same time, it is looking to reduce the reliance of its global supply chain on China. After western governments imposed wide-ranging sanctions on Russia following its invasion of Ukraine, many businesses have questioned the possibility of similar restrictions on China if it targeted Taiwan.
Twite said he did not expect any sanctions against China would be as severe, partly because trade and financial flows between China and the west are so great.
But he said IMI, which has taken a £9mn hit from exiting Russia, is looking to source goods closer to home, adding that the company has been expanding a factory in the Czech Republic.
Its results on Friday indicated that the company has benefited in the short term from the fallout of Russia’s invasion.
Sales rose 10 per cent to £2bn in the year to December, while profits before tax increased 13 per cent to £346mn.
Twite said growth at the company, which manufactures products including valves for liquefied natural gas producers, had been driven partly by countries rushing to develop alternative energy sources.
“A lot of the gas to Europe would have come through Russian pipelines. Clearly there’s a desire to make sure Europe has different suppliers,” he said. “[In the US and the Middle East] they’re expanding their capacity, their ability to export to meet that new demand.”