(CNN) – IBM is to cut more than 1,000 jobs in China, state media reported, as geopolitical tensions between Beijing and Washington prompted many global companies to rethink their future in the world's second-largest economy.
Relations between the United States and China have deteriorated over technologies such as artificial intelligence (AI) and green technology, in part over national security concerns. Some companies have fired or relocated staff discreetly.
Yicai, a Chinese state-owned financial media, reported on Monday IBM will completely close its research operations in the country. These included the China Development Laboratory, which opened 25 years ago in 1999, and the China Systems Laboratory.
In a statement to CNN on Tuesday, the company declined to comment on the number of jobs lost or whether it would keep research staff in China.
“IBM adapts its operations as needed to best serve our clients, and these changes will not impact our ability to support clients across the Greater China region,” he said.
Jiemian, another state-run media outlet, wrote on Monday that the job cuts — which reportedly affected staff in Beijing, Shanghai and Dalian — were announced by Jack Hergenrother, an enterprise systems development executive.
Hergenrother told staff that IBM's infrastructure business in China was “in decline” and that research work in the country would be moved to other labs. The Wall Street Journal reported that Some of the work could be done in the company's laboratories in India.
IBM has a long history in China, supplying machines to a major hospital in the capital for the first time in 1934. After re-entering the market in 1984 following China's opening to the world, the country was seen as a priority with enormous potential.
But in recent years, that enthusiasm has waned. The technology war between the world's two leading economic powers has intensified, making it increasingly difficult for American companies to do business in China.
“It's a reality that market access for Western companies is being restricted, if not closed, in some sectors in China on national security grounds,” David Hoffman, senior adviser at the Conference Board Asia, told CNN.
He added that enterprise IT, which refers to complex systems used by large organisations to manage operations, was one such area, especially since large state-owned and state-connected companies make up the bulk of the market.
In the statement, IBM added that Chinese companies, especially privately owned ones, are increasingly focusing on hybrid cloud and AI technologies and that its strategy was to address those opportunities.
After years as a growth market, China is no longer the promising bright spot it once was for a number of industries. IBM said in its most recent annual report that revenue in the country fell by 19.6% last year.
The news from IBM comes three months after Microsoft confirmed it had offered to relocate some of its employees to China. State media had previously reported that the company made this offer to at least 100 employees.
Like IBM, Microsoft has worked hard to build a good reputation in China.
It entered the market in 1992 and for decades relied on its influential research lab, Microsoft Research Lab Asia, to help it build clout. Its software is used by the Chinese government and businesses, and Bing is the only foreign search engine with any foothold in China.
But it has also faced challenges, as geopolitics cloud business prospects for U.S. companies working on AI and cloud computing research in China.
According to Anne Stevenson-Yang, co-founder and CEO of J Capital Research, “Chinese incentives and bureaucratic insistence” convinced many American companies to move research to the country decades ago.
“For a long time, the Chinese government has been boasting about this. Now, political risk and intellectual property risk are reversing that trend,” he said.
