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When Joe Ngai, McKinsey\u2019s Greater China chair, first began to test-drive his point that \u201cthe next China is still China\u201d on social media, the world\u2019s second-largest economy was in a post-COVID slump. Sluggish consumption and a property market crash were still dragging down the country\u2019s economy, while foreign companies were rethinking their investment in China as both a consumer market and a manufacturing hub\u2014and asking where the \u201cnext China\u201d might be.<\/p>\n
\u201cYou heard all these things. We\u2019re trying to diversify away from China. We\u2019re trying to de-risk from China,\u201d Ngai tells Fortune in McKinsey\u2019s Hong Kong office. \u201cYou can\u2019t find another China. There\u2019s no other China out there now.\u201d<\/p>\n
Ngai\u2019s observation is now a book, The Next China is Still China: An Insider\u2019s Playbook for Winning in the New Era, coauthored with Nick Leung, director of the McKinsey Global Institute and Ngai\u2019s predecessor as Greater China chair.<\/p>\n
The narrative on China\u2019s economy is shifting. New advances in AI have reset the conversation about China\u2019s capacity to innovate, and Chinese products are now winning converts in overseas markets. The U.S.-China relationship is no longer in free fall following U.S. President Donald Trump\u2019s state visit to Beijing in May, the first by a U.S. leader since Trump\u2019s last trip in 2017.<\/p>\n
But for global multinationals, Ngai and Leung argue that China remains a \u201chard, competitive, and oversupplied\u201d market that requires a shift in corporate strategy. Once-dominant brands like Nike, Starbucks, and Volkswagen are now struggling amid fierce competition from hungry Chinese companies. Yet China possesses both a massive consumer market and a deep manufacturing sector, which economies like Vietnam or India still can\u2019t wholly replace.<\/p>\n
\u201cAs a board, as a CEO, you can\u2019t just ignore China or find something else,\u201d Ngai says. \u201cYou need a Chinese strategy.\u201d<\/p>\n
The world\u2019s \u2018toughest gym\u2019<\/p>\n
In their attempts to describe the success of Chinese companies like BYD, Western governments and commentators often blame government subsidies. The argument is that China deliberately manufactures more than it can absorb and dumps the surplus overseas, either to demolish local competition or just because it needs to offload the goods somewhere. That \u201covercapacity\u201d argument has motivated trade protectionism in the U.S., Europe, and even some developing markets like Vietnam and Indonesia.<\/p>\n
Ngai and Leung push back against that framing. First, they point to the initial period of reform starting in the 1980s and how it incubated dynamic entrepreneurs like Alibaba founder Jack Ma and Xiaomi founder Lei Jun. Second, they note that China\u2019s financial system and competition between provincial governments offered cheap credit to local businesses, allowing the growth of (perhaps too many) local champions.<\/p>\n
More recently, Chinese consumers have proved quick to switch to whatever delivers the best product at the lowest price. \u201cIn China, they always give you a shot,\u201d Ngai says. \u201cIf you have a better thing, the market will respond.\u201d<\/p>\n
Ngai ultimately describes China as \u201cthe world\u2019s toughest gym,\u201d training hyper-competitive companies.\u00a0<\/p>\n
\u201cThis is exactly the argument Europeans used to deploy when they were looking at America,\u201d Leung says. \u201cThey would call it cowboy capitalism. China is just an even more intense version of that extreme entrepreneurism.\u201d<\/p>\n
Courtesy of McKinsey<\/p>\n
One symptom of that intensity is a near-endless series of price wars. BYD, the world\u2019s largest EV manufacturer, has repeatedly slashed prices to capture more market share from its rivals, leading to a 55% drop in net profit in the first quarter of the year. Another example is food delivery, where JD.com\u2019s decision to break into a market dominated by Meituan and Alibaba led to all three devoting over 100 billion yuan ($14 billion) to subsidies and discounts over just two quarters. Meituan, the market leader, has now posted three straight quarters of net losses.\u00a0<\/p>\n
Beijing has complained about what has been termed neijuan, or \u201cinvolution,\u201d where relentless competition erodes profits for an entire industry. \u201cThe entire \u200bindustry has \u2060fallen into a vicious cycle of losing money \u200bin an attempt to \u200bgrab \u2060market share, ultimately dragging down the broader trend of consumption recovery,\u201d state media outlet Economic Daily wrote in March, referring to the food delivery price war.\u00a0<\/p>\n
\u201cThe competition is at 11 right now,\u201d Ngai says. \u201cIf you can get it to an eight, or a seven, there\u2019ll be less wastage and less capital being destroyed.\u201d Still, China\u2019s capital controls mean that investors are forced to bear lower returns, because money has nowhere else to go. \u201cIt can be at ten-and-a-half for a very long time,\u201d he admits.<\/p>\n
Multinationals in China<\/p>\n
For two decades, foreign brands enjoyed a structural advantage in China: Consumers were willing to pay a premium for global products that were better than what domestic producers could make.<\/p>\n
That\u2019s not the case now. Apple contends with Huawei and Xiaomi. Nike is losing share to Li Ning and Anta Sports. General Motors, Honda, and Volkswagen are scrambling against BYD and Geely.\u00a0<\/p>\n
\u201cThe German car companies made more money in China than they made anywhere else in the world, put together, for years,\u201d he adds. \u201cWhen you have an entitlement and you take it away? People get very upset.\u201d<\/p>\n
\u201cMultinational companies felt they had a right to print money in China forever,\u201d he adds. \u201cAnd what happened? Competition happened.\u201d<\/p>\n
Ngai points out that Chinese entrepreneurs can make market decisions immediately while global multinationals must work through approval chains stretching back to Tokyo, Stuttgart, or New York. \u201cWhen you have corporate executives fighting against local entrepreneurs who have nothing to lose,\u201d he says, \u201cit\u2019s a very tough battle.\u201d<\/p>\n
A few Western brands, like Coach and Logitech, are managing to turn things around by giving autonomy to local executives and designers in a \u201cChina for China\u201d strategy. Other multinationals, like Volkswagen and Stellantis, are choosing to partner with Chinese companies to adopt their manufacturing and design practices. Others still, like Starbucks and General Mills, are instead selling their China businesses to local investors.\u00a0<\/p>\n
\u201cThose companies that manage to reimagine their China business as a business in itself\u2014all the way from capital, ownership, management structure, and be as responsive to Chinese consumers as Chinese companies are \u2014maintain their competitiveness,\u201d Leung says. \u201cThose that remain global multinationals find it hard to keep up.\u201d<\/p>\n
Going global, and getting stuck<\/p>\n
China\u2019s \u201cgym\u201d might have better prepared its companies to win overseas. Chinese firms are already taking market share in Europe, Southeast Asia, and Latin America, competing on both quality and price. BYD, for example, sold more than one million cars overseas in 2025.<\/p>\n
However, Chinese companies still struggle to figure out how to appeal to foreign consumers. In China, companies sell their goods by focusing on features, but a global approach requires building an emotionally compelling brand. \u201cChinese companies produce fantastic products, but don\u2019t position them correctly,\u201d Leung says. He invokes Coca-Cola, whose value is almost entirely its brand. \u201cDrinking Coke makes you cool,\u201d he says. \u201cIt\u2019s the emotional connection between the person drinking Coca-Cola and the drink itself.\u201d<\/p>\n
Christian Monterrosa\u2014Bloomberg via Getty Images<\/p>\n
Some Chinese companies are starting to tentatively explore how to build a brand premium. MiHoYo, the Shanghai-based game developer behind Genshin Impact and Zenless Zone Zero, has broken into the notoriously difficult Japanese and U.S. gaming markets. More recently, Luckin Coffee has opened outlets in New York City and used viral social media campaigns and localized products to muscle into the city\u2019s coffee scene. Li Ning, the Chinese sportswear brand, recently signed an endorsement deal with basketball star Steph Curry.<\/p>\n
The next frontier may be AI. Chinese AI companies like DeepSeek, Moonshot AI, and MiniMax have released open-source models whose flexibility and top-tier performance are winning converts across the world, including in Silicon Valley.\u00a0<\/p>\n
\u201cThe next export from China that the U.S. hasn\u2019t figured out how to tariff is actually tokens,\u201d Ngai says, referring to the units of data processed by AI models. Chinese AI tokens have already overtaken U.S. tokens on some global marketplaces.<\/p>\n
McKinsey\u2019s own China test<\/p>\n
McKinsey\u2019s history in China starts in 1993, when the U.S. consulting company put four partners in Beijing and Shanghai, years before its competitors did. It had to explain to Chinese clients what consulting actually was and its slide decks were sometimes photographed and sold outside the building for as little as 10 renminbi.<\/p>\n
Leung, who has Swiss and Chinese heritage, joined McKinsey\u2019s Zurich office in 1993 before transferring to Hong Kong in 1997. He served as McKinsey\u2019s Greater China chair for more than a decade before turning to lead the McKinsey Global Institute, the firm\u2019s economic research arm, in 2011. Ngai, who took over as Greater China chair that same year, has run the region since then.<\/p>\n
McKinsey has had its own problems in China. In October 2024, the Wall Street Journal reported that McKinsey had cut approximately 500 jobs in Greater China, roughly a third of its regional workforce, after scaling back its client base. Partners reportedly debated whether the firm should continue to do business in China at all, given the deteriorating state of U.S.-China relations.<\/p>\n
The firm has pulled back from serving state-owned enterprises, a sector that had become both politically fraught for a U.S. company and simply harder to serve well. \u201cIs that growth the same as what we were thinking about in the early 2010s?\u201d Ngai asks. \u201cIt\u2019s probably more mature.\u201d<\/p>\n
\u201cOur addressable market has become narrower,\u201d Leung adds, \u201cbut we\u2019re addressing a fast-growing market even within that narrow band.\u201d<\/p>\n
A \u2018cold peace\u2019<\/p>\n
China\u2019s economy, while improving, still hasn\u2019t returned to the heady days of the 2000s and 2010s. Retail sales grew just 0.2% in April, the slowest rate since December 2022, the depths of the COVID pandemic. Industrial output rose 4.1%, below expectations.\u00a0<\/p>\n
\u201cWe\u2019re in a longer-term 4% or 5% growth scenario, and we\u2019re trending lower,\u201d Ngai says. Yet he sees the shift as \u201chealthy,\u201d setting more realistic expectations about the country\u2019s economy.<\/p>\n
\u201cWe\u2019re still mid-reset,\u201d Leung adds. \u201cIt\u2019s not a structural slowdown or structural demise. It\u2019s not the next Japan.\u201d<\/p>\n
Trump\u2019s May visit to Beijing, the first such visit in nearly a decade, ended without major trade breakthroughs. The biggest success was a deal for China to buy 200 Boeing planes, fewer than an expected 500-jet order.\u00a0<\/p>\n
Yan Yan\u2014Xinhua via Getty Images<\/p>\n
\u201cBusiness conditions aren\u2019t contingent on the two presidents meeting,\u201d Ngai admits. \u201cGeopolitical calm is good, but if I\u2019m a multinational, the China market remains freaking hard. That\u2019s not going away anytime soon.\u201d<\/p>\n
Still, even just setting a floor under the U.S.-China relationship is better than nothing, even if corporate and trade developments will take longer to arrive.\u00a0<\/p>\n
\u201cA cold peace is better than no peace,\u201d Leung says.\u00a0<\/p>\n
In Fortune\u2019s \u201cAsia Agenda\u201d column, released twice a month, we speak with Asia\u2019s top business leaders about how they are building for the future and the lessons they\u2019ve drawn from leading companies in one of the world\u2019s fastest growing and most dynamic regions. Explore all of our profiles here.<\/p>\n
Fortune is hosting the Fortune Leaders Forum on September 8 in Macau, China, on the theme \u201cLeadership in the Age of Convergence and Complexity.\u201d Join business leaders as they discuss how today\u2019s world demands decisive leadership and a balance of strategic imagination with operational agility. Register here!<\/p>\n
#McKinsey #global #companies #China #strategy<\/p>\n","protected":false},"excerpt":{"rendered":"
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