Leading U.S. consulting firm McKinsey & Company is reportedly downsizing its workforce in China, eliminating around 500 positions, which equates to about one-third of its employees in the region. This decision is part of a strategic move to address security concerns linked to its operations in China.

What Happened: McKinsey is reportedly scaling back its dealings with clients connected to the Chinese government, The Wall Street Journal reported on Thursday. This restructuring aims to isolate its China unit from its global operations to minimize security risks.

Over the last two years, the firm has reduced its workforce in Greater China, including Hong Kong and Taiwan, by several hundred employees. As of June, McKinsey had nearly 1,500 employees listed on its Greater China website.

McKinsey has yet to respond to Benzinga’s queries.

See Also: As China’s Stimulus Hype Wanes, Beijing Reportedly Weighs $850B Special Treasury Bonds To Stimulate Economy And Tackle Local Debt

Why It Matters: The job cuts at McKinsey come amid escalating tensions between the U.S. and China, particularly in the technology and trade sectors. U.S. tech giants like Alphabet Inc.’s Google and Microsoft Corp.-backed OpenAI have increased employee screening due to fears of Chinese espionage.

Concerns have risen that foreign governments might exploit compromised staff to access sensitive corporate data. Additionally, China has been urging its companies to reduce reliance on U.S. technology, such as Nvidia Corp.’s chips, to bolster its domestic semiconductor industry and counter U.S. sanctions.

The U.S. has also added several Chinese firms to its export control list, which China criticized as undermining international trade norms.

This move is perceived as an attempt to restrict Russia’s access to advanced U.S. technology. The ongoing geopolitical tensions have led to significant shifts in business strategies for companies like McKinsey, which are navigating the complexities of operating in both markets.

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Disclaimer: This content was partially produced with the help of Benzinga Neuro and was reviewed and published by Benzinga editors.

Photo courtesy: McKinsey