Foreign companies show heightened interest in China

By Edward Tse

Our recent interactions with foreign companies have revealed that the level of interest in China has heightened since the 20th National Congress of the Communist Party of China (CPC) held in October.

Subsequent events such as German Chancellor Olaf Scholz's visit to Beijing, President Xi Jinping's attendance at the G20 Summit and APEC, and his visit to Saudi Arabia have generated much interest in the global business community. The interest has continued to heighten.

What aspects of China are foreign companies interested in and what questions do they ask?

Questions surrounding the 20th CPC National Congress include: What does the latest stance outlined in this Congress mean to China's politics, economy, and social development? What's China's role in the world? Is China becoming more "dictatorial" and "authoritarian"? Do private-sector and foreign businesses have a chance?

Like any major step or shift in stance by China, there are always at least two different perspectives, a pessimistic one and the other more optimistic. In the case of the 20th CPC National Congress, people in the pessimistic camp were asking questions such as, is China becoming even more restrictive in politics and economics? Will there be little checks and balances at the top? Will China's relationship with the West worsen? Will private sector companies and foreign businesses be restrained? Has China "peaked"?

On the other hand, people in the optimistic camp are asking questions such as, does Chinese President Xi Jinping now have a team that will be highly productive? Will China's focus on inclusiveness and high-quality growth provide opportunities for all categories of businesses? How will the global landscape impact China's economy? Can China achieve its target of doubling its GDP by 2035, and others.

The recent relaxation of the dynamic zero-COVID policy, while having generated current and hopefully short-term pain, have heightened foreign companies' expectations of an uptake in the Chinese economy next year.

Furthermore, President Xi supporting private sector enterprises, especially the "platform companies" (large internet companies) and his reiteration on no discrimination by type of enterprises at the annual Central Economic Work Conference has strengthened confidence of the foreign business community interested in China.

For those who are interested in China, their questions are a function of where they stand.

For those who haven't established a real presence in China or have a relatively small presence, the main question is how to enter the China market or expand their current presence. It is believed there is a steady stream of companies looking to do so.

Another group of companies are those who have been in China for some time but have met with limited success because of their strategies. For instance, some have relied primarily on exports to China, without enough localization. The questions that this group of companies ask typically include the following: How can we identify and exploit the potential of the Chinese market? How can we grow more in China? Where do we stand on localization?

Then there are companies who have been in China for a long time and their operations in China have grown. For some of these, China has become one of their largest, if not the largest, markets. They have known for some time the importance of notions such as localization, and multiple product market strategy for China. Many have done various partnerships in China.

Increasingly, more of these companies have also come to realize that China has become a source of inspiration and knowledge for innovation, and to win in China, they need to understand and engage in this process. For some, their China strategy is also the core to their global strategy. The questions that these companies ask would include: How could we devise "game-changing strategy" in China (and for that matter for "China for the world")? How could we build the capabilities needed to play the new game? How can we learn from China's innovation and turn that knowledge into our own?

For almost everyone, geopolitics is an overhanging concern. Many are wondering how geopolitics is influencing their businesses, for instance, the threat of decoupling and deglobalization. The most notable sector in these respects are those in the semiconductor industry.

Across industries, foreign companies are also concerned about the rapidly developing competitiveness of the Chinese players and are wondering how to deal with that. In some industries, overcapacity is evident and companies are questioning how to deal with that.

In addition, many foreign companies are also concerned about their supply chain security and reliability. The COVID-19 pandemic in the last couple of years has triggered doubts in some companies' minds about the risks of their supply chains. However, on the whole, they believe China will remain the major hub of supply chains in the foreseeable future.

Many foreign companies are of the view that China has entered a new era epitomized by more growth. Many are taking China seriously, but they also find that developing a superior China strategy requires sharp strategic thinking. It's expected that more foreign companies will make their strategic moves in China next year.

Edward Tse is the founder and CEO of Gao Feng Advisory, a strategy and management consulting, and financial advisory firm.