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Analysis: What’s Behind the Spike in U.S. Company Layoffs in China?

Published: Jul. 31, 2025  7:32 p.m.  GMT+8
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Foreign companies are cutting staff in China as they undergo a new round of restructuring. Amazon Web Services is closing its AI lab in Shanghai due to changes in U.S.-China relations. Photo: AI generated
Foreign companies are cutting staff in China as they undergo a new round of restructuring. Amazon Web Services is closing its AI lab in Shanghai due to changes in U.S.-China relations. Photo: AI generated

Some foreign companies are cutting staff in China as they undergo a new round of restructuring stemming from the uncertainties of U.S. tariffs and the rise of artificial intelligence (AI) and Chinese competitors.

American tech giant Amazon.com Inc. is among the latest to scale back in China, with news last week that its cloud computing arm, Amazon Web Services (AWS), is closing its AI lab in Shanghai.

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  • Foreign companies, including Amazon and IBM, are cutting staff in China due to U.S.-China tensions, tariffs, rising AI and local competition.
  • USCBC survey shows 40% of 130 U.S. companies were negatively affected by export controls; fewer than half now plan to invest in China, down from 80% in 2024.
  • Rising operational costs and competition drive layoffs, but many foreign firms continue investing in strategic sectors rather than fully exiting China.
AI generated, for reference only
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Several foreign companies have recently been cutting staff in China as they undergo restructuring in response to growing uncertainties linked to U.S. tariffs, the advancement of artificial intelligence (AI), and increasing competition from Chinese firms. The trend reflects broader challenges in the bilateral economic relationship and the evolving Chinese business environment[para. 1].

Amazon.com Inc. is among the latest companies to scale back its operations in China, having recently closed its Amazon Web Services (AWS) AI lab in Shanghai. According to a post by lab scientist Wang Minjie, the closure of AWS's last overseas research institute was driven primarily by shifts in China–U.S. relations[para. 2][para. 3]. Similarly, IBM last year laid off approximately 1,000 employees when it downsized its only remaining research and development unit in China[para. 4]. Such job cuts by foreign companies have become common in recent years, according to Mao Yufei, a labor economics professor, reflecting the deteriorating relationship between the two nations amid ongoing tariff tensions and an increasingly complex regulatory environment[para. 5][para. 6].

The impact has been felt by Chinese employees, such as Xu Yang (a pseudonym), who was laid off along with most of her marketing colleagues at a U.S.-backed software company. Xu attributes the uncertainty to shifting U.S. policy, including concerns that clients could be placed on the U.S. Entity List, subjecting them to trade restrictions and undermining business relationships[para. 7][para. 8][para. 9]. In reaction, some American companies, like Xu's, have reduced their direct operations by delegating responsibilities to general distributors as a way to mitigate risks[para. 9].

According to a recent U.S.-China Business Council (USCBC) annual survey, U.S.-China relations and tariffs have emerged as top concerns for American firms in China, with tariffs jumping to the second most important issue in 2024. Around 40% of the 130 surveyed companies reported being negatively affected by tighter U.S. export controls, particularly in sensitive sectors such as semiconductors, AI, and advanced computing. These controls have led to reduced sales, broken relationships with Chinese clients, and a growing perception that U.S. firms are unreliable suppliers[para. 10][para. 11][para. 12].

Another major challenge for foreign enterprises is the growing competitiveness of Chinese firms, especially in the internet, electronics, new energy, telecommunications, and machinery sectors, driven in part by supportive government policies. Survey results indicate that the share of companies gaining market share in China has dropped from 33% in 2021 to 18% this year. This increased competition, combined with rising operational costs—including higher wages, land prices, and compliance expenses—is prompting some companies to shift labor-intensive operations to lower-cost Southeast Asian countries[para. 13][para. 14][para. 15][para. 16].

Despite the layoffs, foreign companies are not fully withdrawing from China. Many continue to invest, particularly in high-value sectors like advanced manufacturing, research and development, and green technologies. The restructuring is seen as structural adjustment and optimization, rather than a wholesale retreat[para. 17]. Zhao Haiyun, a strategy consultant, notes that traditional manufacturing-based companies are transforming, moving towards innovation, and pruning roles that do not fit their new strategies, often by adopting AI tools to improve efficiency and reduce costs[para. 18][para. 19][para. 20].

Interns contributed research and reporting to the story[para. 22]. Contact details for the reporter and editor are provided for further information[para. 23].

AI generated, for reference only
Who’s Who
Amazon.com Inc.
Amazon.com Inc. is scaling back operations in China. Its cloud computing arm, Amazon Web Services (AWS), closed its AI lab in Shanghai. This closure, AWS's last overseas research institute, is attributed to changes in China-U.S. relations, highlighting challenges faced by foreign companies in China due to geopolitical tensions and increased competition.
Amazon Web Services (AWS)
Amazon Web Services (AWS) is Amazon.com Inc.'s cloud computing arm. It recently closed its AI lab in Shanghai, which was its last overseas research institute. This closure was attributed to changes in China-U.S. relations, as stated by a lab scientist on WeChat.
IBM
IBM, a major American technology company, recently implemented layoffs affecting approximately 1,000 employees at its sole remaining R&D unit in China. This move is part of broader downsizing trends among foreign companies in China, influenced by escalating U.S.-China tensions, U.S. tariffs, and growing competition from Chinese firms.
AI generated, for reference only
What Happened When
2021:
33% of surveyed companies reported taking a greater market share in China.
2024:
IBM announced layoffs at its only remaining R&D unit in China, dismissing about 1,000 employees.
2024:
80% of US companies surveyed planned to invest in China (prior year comparison for 2025 investment intentions).
March–May 2025:
US-China Business Council surveyed 130 companies regarding their China operations and challenges.
This year (2025):
Share of surveyed companies reporting greater market share in China declined to 18%.
2025:
Xu Yang's company decided to scale back in the Chinese market, handing operations to a general distributor.
As of 2025:
Xu Yang and nearly all colleagues in her marketing department were laid off from a US-backed software company in China.
July 2025:
US-China Business Council published its annual survey highlighting tariffs and competition as key challenges for US companies in China.
Late July 2025:
Amazon Web Services (AWS) announced it was closing its AI lab in Shanghai.
AI generated, for reference only
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