When and Why Do European Firms Pull Back from China?

What factors drive European firms to disengage from China? In the context of intensifying economic nationalism and the geopoliticization of trade and investment policies, little beyond anecdotal evidence is known about whether – and to what extent – European firms are pulling away from the largest, and perhaps the most important offshore location in the world. We draw on a novel database of European firms’ ownership positions in China over a 15-year period (2008-2023) to assess the effects of geopolitical distance, policy instruments, and anti-trade attitudes on European firms’ choice of divesting away from China, relying on both firm-level and sector-level analyses. Our results suggest that at the firm level, geopolitical distance with China and anti-trade sentiment are both drivers of European firms’ divestment from China. At the sector level we observe that policy incentives work in conjunction with geopolitical distance and anti-trade sentiment respectively, in incentivizing divestment.