International Business Machines Corp. is shutting down a hardware research team in China in part due to geopolitical tensions between the world’s two largest economies.

The China-based team was focused on research and development of hardware such as servers and storage and its closing will affect less than 1,000 employees, according to a person familiar with the decision. The job functions will be relocated to other countries, particularly India, the person said.

“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,” a spokesperson said. 

Big Blue joins a growing list of companies scaling back their ambitions for China as an economic downturn, heightened regulatory scrutiny and a drive to replace foreign technology depresses sentiment. Wall Street names such as Morgan Stanley have shifted some operations abroad, while foreign investment has slowed partly due to concerns that Beijing is favoring local players.

The move shows “the diminishing importance of the region for U.S. tech firms as local clients increasingly opt for home-grown providers,” wrote Anurag Rana, an analyst at Bloomberg Intelligence. It also underscores the company’s focus on expanding profit margins, he added.

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Hardware is a particularly sensitive arena given the U.S. and China are locked in a conflict over key technologies from semiconductors to artificial intelligence. Beijing is trying to foster the growth of national champions such as Huawei Technologies Co., worried that restrictions on U.S. technology will hamper the country’s longer-term prospects and curtail its geopolitical clout.

Local media including Yicai first reported the reductions on August 26.