European companies in China face pressure to separate local operations from global functions due to strict regulations and geopolitical uncertainties. A report by the European Union Chamber of Commerce highlights that while localizing operations may be commercially driven, it risks diminishing global competitiveness. The report notes that siloing can lead to increased costs and inefficiencies, and warns of a decline in EU foreign direct investment in China. Ambiguities in China's national security laws further complicate compliance, prompting calls for clearer regulations and active foreign participation in standard-setting.