By Joe Ngai and Nick Leung
The real question for companies goes beyond whether China is rising or stalling but where and how they can still compete.
Despite slower growth and rising uncertainty, China remains too large, innovative, and strategically important to ignore. But, China’s next chapter is a story of adaptation, competition, and reinvention. According to Joe Ngai, Chairman of McKinsey & Company Greater China, and Nick Leung, Director of the McKinsey Global Institute, coauthors of The Next China Is Still China, the companies most likely to succeed in this new era will be those that understand how the country is shifting, pivot accordingly, and harness its unique ecosystem.
Multinationals no longer view China as a hyper-growth market. Global boards are debating whether China remains “investable”—not because of any single shock but due to concerns about geopolitics and regulatory moves that can be hard to predict. As one Canadian institutional investor said in 2024, “If I put more capital into China today, I have to answer so many questions. If anything goes wrong, I risk my job. If I wait and see, I’m just being conservative like everyone else.”
This doesn’t mean multinational companies are naive, passive, or standing still. On the contrary, many executives are deeply sophisticated, understand the China market well, and are actively fighting to adapt. For years there was strong alignment and mutual benefit. That honeymoon is now over.
Chinese Entrepreneurs Are Also Feeling Pressure
It’s not only multinationals that are facing challenges. Founders say the next decade will demand sharper execution and a deeper look at cost structures. The abrupt shift has caught many off guard. The pressure is real. Companies across China are freezing salaries, cutting pay, and shutting business lines. Layoffs are hitting both internet platforms and traditional industries, and even some state-owned enterprises are trimming compensation. “Cut costs and boost productivity” has become the new mandate. In the past, opportunity seemed to be everywhere; the challenge was focus. Now, with domestic markets slowing and the competition intensifying, global expansion is becoming a serious consideration—just as geopolitical complexity reaches generational highs.
Exit or Pause?
For multinationals, exiting might seem to reduce exposure to risk in the short term, but companies are finding no replacement for the volume that China provides. More important, step away from China, and you not only lose the Chinese market but also your ability to compete globally, particularly in high-value industrial sectors. As Mingyu Guan, a McKinsey senior partner leading China’s automotive practice, says, “China is now offering a spectrum of possibilities that multinationals can benefit from. It’s now a market that will be driving cutting-edge change. That logic extends across sectors that depend on complex, high-value products. And no CEO wants to be the first in their sector to give up on China. Therefore, outside of a few cases that make sensational headlines, very few notable multinationals are completely pulling out of China.
Pausing investment or taking a “wait and see” approach may feel safer—and many companies are doing exactly that. This choice is often frustrating for local China teams, for which needs on the ground feel endless, from re-investing in operations to funding local R&D and technology upgrades. Yet committing new capital to China today is rarely straightforward, leaving many boards divided and hesitant. As Jeongmin Seong, a McKinsey Global Institute partner, puts it, “China is a market where companies feel pressure to keep investing just to stay competitive. If you don’t do that, you’ll struggle, but if you do, the payoff is harder to predict than before.” Yet in a market that moves this fast, standing still means falling behind. Product cycles that once took years now unfold in months. Local firms don’t have the option to exit—so they continue investing and innovating.
Rethinking How to Compete and Pivoting
What we recommend is a pivot. Firms must rethink how to compete in China. Tighten up your cost base, team up with the right local partners, find efficiencies you may not have needed before, and get comfortable with faster, more value-for-money innovation. Companies are forming joint ventures, engaging with Chinese private equity to fund the next stage of growth, or shifting to an “in China, for China” model whereby products, processes, and decisions are built for the speed of this market.
Michael Hui of Bain Capital puts it bluntly: “Ten years ago, all you needed was access and the courage to invest, and the market carried you. Now you need real techniques and investing discipline. If you look at the top line, there’s much less to celebrate these days—but look ‘bottom-up,’ and there’s a lot of very interesting things happening.”
Exiting or pausing is not an option for Jebsen Group, distributor of Porsche, Dyson, and Blue Girl Beer in China. “If you surrender now, the problems you have in China will come to your home markets in five years,” says its CEO, Alfons Mensdorff-Pouilly. “It’s investment time right now, and then by 2029 or 2030 it will be harvesting time again. If you tap some entrepreneurial guts and think outside the box, the market can still be as rewarding as it was ten or fifteen years ago.” China’s business landscape is too big, too fast, and too varied for any single strategy to be exhaustive or for prescriptions to apply uniformly.
Unleashing the Entrepreneur’s Advantage
Over the past decade, multinationals have been steadily losing market share to local competitors in China. Domestic firms will have built-in advantages around localization, cost structures, and deeper insight into the consumer. But we maintain that the biggest problem is around governance, incentives, and organization.
At the core, China subsidiaries of global multinationals tend to be led by executives operating within large, complex organizations, while competitors are typically entrepreneurs fighting as though everything is on the line. One side is navigating global structures; the other feels like they’re locked in a battle for survival. The trick is to unleash the same entrepreneurial energy inside multinational teams and equip executives to compete with speed, agility, and hunger. Some corporations have adopted private equity–style ownership models to sharpen incentives and enable more local decision-making. Ultimately, multinationals must treat China not just as a market to be served but as a business to be built to sustain over cycles—with local autonomy, accountability, and entrepreneurial drive.
The Land Grab: Converting Scale into Staying Power
China has long been defined by scale. But the old “land grab” mentality, which once rewarded speed and size at any cost, now no longer ensures strength. As growth becomes costlier, scale must be paired with strategic focus, operations excellence, structural advantage, and a clear path to profitability. Companies that build regional or technical moats are far more likely to achieve durable, sustainable returns. Companies that dominate a single segment often achieve better profitability and resilience than larger players spread across multiple businesses.
Winning in the next China requires looking past the averages to uncover real opportunities. We see openings everywhere we look: resilient consumers in lower-tier cities, Gen Z leaning into experiences, even outdoor enthusiasts lifting a flat apparel market. One company approaches snacks with a 3D “Rubik’s Cube” strategy, segmenting by city tier, occasion, consumer cohort, and channel. China’s baijiu liquor producers are toying with alcohol content and repackaging for new occasions. Remember that in China, even a “niche” is enormous.
Going from Factory to Innovation Lab
China’s innovation engine has shifted decisively—from imitation to iteration and increasingly toward originality in select fields. In other words, Chinese companies are evolving from copycat to innovator, from fast follower to global originator. Breakthroughs in EVs, batteries, AI, biotech, and new models of online retail and social commerce are no longer merely adapted in China—many are now conceived, tested, and scaled there. Innovation is no longer a one-way flow from West to East—it’s circulating through dense ecosystems of engineers, suppliers, researchers, and demanding consumers at speed. In the next China, innovation is not just about invention but about who can learn, optimize, and scale fastest—and who can harness China’s ecosystem without being outpaced by it.
Takeaway
The advantages that once helped companies succeed in China will continue to erode as the market matures. The competition in China’s “gym” is relentless and multinationals must learn to match the hunger, resilience, and adaptability of the rest of the market.
About the Authors
Joe Ngai is a McKinsey senior partner and chairman of the firm’s offices in Greater China. He has led large-scale transformations for Chinese and multinational organizations and advises many of the top corporate leaders in the region. He has an AB, JD, and MBA from Harvard University.
Nick Leung is a McKinsey senior partner and member of McKinsey’s global board of directors. He is also a lead-director of the McKinsey Global Institute, the firm’s independent research arm, where he directs research on macroeconomics, global trade, and geopolitics. He has both a bachelor’s and master’s degree from the London School of Economics.
Joe Ngai and Nick Leung are McKinsey senior partners and the authors of The Next China Is Still China: An Insider’s Playbook for Winning in the New Era.
