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Western companies certainly do risk losing sales if they refuse to relocate production to China. China does not really have official trade barriers, but its government has enough ways of manipulating rules and doing other things to make it hard for companies to sell in China if they do not locate their production there. In addition, it is possible that companies will lose sales simply because Chinese consumers prefer to buy from companies with a presence in China or because companies without in-country production will not be able to respond quickly enough to changes in Chinese tastes.
China was originally just a source of cheap labor. Companies relocated there to take advantage of this. But now, China has a big enough middle class that it is a major market in its own right. Many companies have moved some production to China or have decided to stay in China largely because they want to sell in the domestic market. They feel that it is important to actually have a presence in the country if they want to be able to do this. Thus, they clearly feel that they would lose sales if they refused to locate production in China.
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