Shanghai-based business and financial media outlet Yicai reported on Monday that International Business Machines (IBM) plans to shut down its research and development division in China, impacting over 1,000 employees. This comes as China’s economic slowdown gathers pace and US companies are increasingly exiting the world’s second-largest economy, opting for ‘friend-shoring’ or ‘reshoring’ to secure supply chains amid vast uncertainty with deteriorating Sino-US relations. 

Yicai explained that the IBM China Development Lab and IBM China System Lab would be wound down, and over 1,000 employees would be cut. 

Here’s more from the Shanghai-based media outlet:

China was once IBM’s most well-established regional market outside of the United States, and the R&D division’s shuttering marks a significant turning point in the firm’s 40 years in China. IBM shut its China Research Lab in January 2021, whose main product was Watson, a computer system launched in 2011 that can answer questions raised in natural language.

“I’ve served IBM for several decades, and the shutdown of its Chinese R&D division is a pity,” one IBM employee commented.

“The R&D division’s closure will only impact testers, who are not responsible for R&D in the strict sense,” a person who worked in many US software companies told Yicai. “IBM actually moved its entire R&D division to the US years ago.”

“IBM will adjust its operation based on needs,” IBM China said. “These changes will not impact our ability to support customers in China.”

IBM’s move to shutter its R&D facilities in China should be seen as part of a broader trend of ‘friend-shoring’ or ‘reshoring,’ in which US companies move toward friendlier, more stable environments amid deteriorating US-Sino relations.

In recent years, Apple’s move to diversify its production from China to India and elsewhere only suggests that this trend will continue through the end of the decade. Companies exiting China are turning to the Americas, such as the US and Mexico, India, Japan, Vietnam, India, Indonesia, and Japan. 

The major shift out of China by Western companies, plus the nation’s property crisis and demographic winter, only suggests that the growth rates of 8, 9, 10, and 11% might never be achieved in this decade, and 2, 3, and 4% growth rates are the new normal. These growth rates might be even lower in the next decade.