1、The New China StoryShort-term Instability,Long-term StrengthMultinational companies have built up a strong local presence in China in the past decades.Many of them based their success on the“Old China Story,”which was mainly driven by the so-called“Three Carriages”consumption,investment,and net expo

2、rts,along with other driving forces such as low labor cost,lax environmental regulations,and high capital productivity.However,this“Old China Story”is over.Uncertainty and unpredictability have emerged as part of the Chinese economy,and past advantages that contributed to economic growth are disappe

3、aring.On the other hand,bilateral(economic)relations have proven successful,yet controversies continue to emerge in both bilateral relationships and the global context.The bilateral relationship between Germa-ny and China is being reassessed by the German government in all areas as part of its“China

4、 Strategy,”mainly due to political developments in China in recent years and Germanys“turn of the century”in foreign policy,sparked by the Russian war of aggression against Ukraine.The assessment of China in the triad of the cooperation partner,economic competitor,and systemic rival is now a consens

5、us among political stakeholders in Germany,the EU,and among German businesses.It is equally agreed upon that human rights violations are not compatible with the values of German companies.German companies are considered model companies in China in social responsibility and sustainable business pract

6、ices.Over one million employees of German companies in China also serve as ambassadors in society for the values German companies represent.In this context,multinational companies are now discussing the best ways to mitigate risks and better engage in the Chinese market.Combined with Roland Bergers

7、profound strategy consultancy expertise in global markets and major industries,and valuable testimonials from some representative member companies of the German Chamber of Commerce in China,we jointly published this report on the Chinese economy and multinational companies China strategy,under the u

8、nderstanding that there is a new Chi-na story,with a changed political,economic,and social environment.With this report,we revealed that even though the old China story is over,the fundamentals that have made multinational companies successful in China remain.To better engage in the Chinese market a

9、nd maintain a competitive edge,it is crucial to develop new business models and mitigate risks to better fit the“New China Story.”There is a famous proverb from old Chinese wisdom “when the winds of change blow,some people build walls,while others build windmills.”Amid the changes and challenges of

10、our time,success will ulti-mately go to multinational companies that can rapidly transform their engagement models and adapt to the new conditions of the local markets.Jens HildebrandtExecutive Director&Board Member German Chamber of Commerce in China|North China Maximilian ButekExecutive Director&B

11、oard Member German Chamber of Commerce in China|Shanghai Martin KloseExecutive Director&Board Member German Chamber of Commerce in China|South&Southwest China PREFACE The New China Story 2Denis DepouxGlobal Managing Director Roland Berger 23482232426272831TABLE OF CONTENTSPREFACETABLE OF

12、CONTENTS1.A“PERFECT STORM”IN 20222.MULTINATIONALS ARE WORRIED ABOUT CHINA 3.THE“OLD CHINA STORY”IS GONE4.A“NEW CHINA STORY”IS BEING WRITTEN4.1 What Is the“New China Story”?4.2 Three New Economic Engines 4.3 China Will Be Back;MNCs Will Stay 5.HOW CAN FOREIGN COMPANIES ADAPT TO THE NEW CHINA STORY?5.

13、1 The Foreign Business Footprint in China Remains Broad and Deep 5.2 Risk Anticipation and Mitigation 5.3 Evolution of Business Model 5.4 Real Client Case of Risk Mitigation 6.SUMMARY AND STRATEGIC OPTIONSCONTACTS The New China Story 31FIGURE 1.1:In 2021,China strongly supported the world economic r

14、ecovery but 2022 turned into a“perfect storm,”with highly uncertain outcomes 1A“PERFECT STORM”IN 20222022 Was a Difficult Year for ChinaIn 2021,China was the driving force behind the worlds economic recovery.However,in 2022,the Chinese economy faced a“perfect storm.”The Chinese supply chain has been

15、 critical to the worlds economies in meeting the surging demand of the post-Cov-id-19 period.It showed quite extraordinary resilience in the second half of 2020 and early 2021.In 2021,Chinas GDP growth led the world with an 8.1%jump,and its export growth hit a new high of 30%versus 2020.It helped fi

16、nance more investment,especially in automation and robotization,which made China an even more powerful and modern-ized manufacturing powerhouse with increasing capacity and productivity.Yet,2022 was a difficult year.While Covid-19 was still circulating around the world,the Russian war of aggression

17、against Ukraine unleashed a global economic shockwave,only matched by the oil price shocks in the past.Inflation has been on the rise since 2018,followed by the beginning of the trade war between China and the US,and then fue-led by logistics bottlenecks and demand surges during and after Covid-19 w

18、aves.Inflation received a global boost due to increased energy prices and tightening monetary policies,which caused further pressure on demand.Fur-thermore,Chinas domestic demand slowed down significantly due to the stringent Covid-19 lockdown policy.At the same time,the world has witnessed the acce

19、leration of climate change,with extreme weather during the sum-mer of 2022 causing damage in both emerging and developed economies.For China,the convergence of all the disruptions and challenges turned into a“perfect storm,”adding pressure and raising a debate on the resilience of the Chinese econom

20、y.Source:IMF;National Bureau of Statistics of China;General Administration of Customs of the Peoples Republic of China;Roland Berger The New China Story 5 The New China Story 6Decline In Consumer Confidence The stringent Covid-19 control policy inevitably disrupted economic activity,especially consu

21、mption.Since the second half of 2021,China has experienced a decline in consumption growth.Chinas value of total retail sales of consumer goods dropped by 11%in April 2022 compared with the prior year due to the Covid-19 resurgence and lockdowns in major cities.The slump in car sales,for example,was

22、 even more dramatic,with consumption plummet-ing 48%year-on-year in the same month.Chinas total retail sales of consumer goods in 2022 was 44 trillion RMB,a decrease of 0.2%compared to 2021.Within retail sales,revenues of restaurants and catering fell by 6.3%in 2022.FIGURE 1.2:China also experienced

23、 a decline in consumption growth since H2 2021,dropping dramatically in April/May 2022 Source:National Bureau of Statistics;Roland Berger To stimulate economic vitality,China has cut the loan prime rate(LPR)three times since December 2021.The five-year loan prime rate was reduced by 35 points,and th

24、e one-year loan prime rate was reduced by 20 points.Despite these efforts,business activities were not efficiently shored up due to the sluggish confidence in demand.In the first 11 months of 2022,Chinas incremental household savings have reached 15 trillion RMB,which is already 5 trillion RMB highe

25、r than the entire year of 2021.At the same time,the value of incremental household loans was only half of that in 2021.In response to uncertainties and concerns for the future,people prefer to save more money rather than spend,in-vest,or take on debt.Boosting consumption has become one of the top pr

26、iorities for the Chinese government in 2023.FIGURE 1.3:China has continuously decreased LPR to stimulate the real economy.However,it did not sufficiently boost the economy due to sluggish consumption in demand Source:The Peoples Bank Of China;Roland Berger 2023 Will See a Bumpy Recovery Route The Co

27、vid-19 control policy inevitably disrupted economic activities,especially consumption.Yet some fundamental aspects of the Chinese economy have proven resilient:Chinas exports remained high in 2022 despite the slowdown in Q3-Q4,and increased by 9%in the first 11 months compared to 2021,which was alre

28、ady an excellent year for ex-port growth.The inflation and currency fluctuation also stayed in a moderate range compared to many other coun-tries,creating a solid foundation for the recovery.At the end of 2022,China abruptly loosened its Covid-19 control policies and reopened to the world.This new d

29、evel-opment immediately improved market sentiment.The expected recovery of the Chinese economy will brighten the global economic prospects for 2023.Yet,things are more likely to get worse in the first few months of 2023 before they get better,considering the surging Covid-19 cases in recent and comi

30、ng months and referring to the reopening experience of other Asian economies.Therefore,we expect 2023 will prove a bumpy recovery route for China.The New China Story 72When Covid-19 started spreading across the globe,Chinas domestic B2B and B2C markets served as additional growth engines for many mu

31、ltinational companies,being relatively protected from Covid-19 waves until early 2022 and generating both volume and profits for some companies.Heading into 2022,the Zero-Covid response and the ongoing Omicron wave in China have put pressure on markets and company performance,resulting in low busine

32、ss sentiment in the foreign business community.Business Confidence of Foreign Companies in China Hit Historic LowIn the Business Confidence Survey 2022/23 conducted by the German Chamber of Commerce in China,the business sentiment of German companies reached a historic low amid the continuation of z

33、ero-Covid policies and geopolitical tensions.Only 24%of the surveyed companies experienced an improvement in the development of their industry in China in 2022 compared to 2021,while 45%experienced a worsening.FIGURE 2.1:Rebound of industry development in 2023-expectations still not comparable to pr

34、e-Covid times How do you evaluate the development of your industry in China in 2022 compared to last year?And what are your expectations for 2023?(2018:n=420;2019:n=460;2020:n=535;2021:n=587;2022:n=585)Source:AHK Research and Analysis improving unchanged worsening Note:I dont know answers excluded20

35、18(actual)2019(outlook)2019(actual)2020(outlook)2020(actual)2021(outlook)2021(actual)2022(outlook)2022(actual)2023(outlook)15%32%53%19%27%54%38%31%31%28%31%41%39%28%33%9%25%66%20%18%45%29%21%31%31%33%59%51%24%38%2MULTINATIONALS ARE WORRIED ABOUT CHINA The New China Story 9 The New China Story 10Expe

36、ctations for all four key performance indicators dropped in 2022:turnover,profit,investment,and employment.A larger share of companies reported a decrease,while a smaller percentage reported an increase compared to 2021.FIGURE 2.2:Turnover and profits heavily impacted by zero-Covid policy How do you

37、 expect your company to perform in the following areas by the end of 2022 compared to 2021?(2021:n=587;2022:n=570)Source:AHK Research and Analysis In 2022,we could strongly sense that the business confidence in China as a manufacturing base and technology/in-novation partner has been called into que

38、stion,and optimism was afflicted.“The geopolitical risks have an impact on our investment.For example,we had planned to invest in new production facilities in a neighboring province of Shanghai,but later the headquarters only approved an investment to expand our existing facil-ities in Shanghai,cons

39、idering the risk.New investment for a new plant would very possibly be made in favor of a country in ASEAN”-Managing director of a leading German industrial system provider.19%5%57%4%15%30%6%53%1%11%22%10%55%4%7%21%6%48%12%14%19%6%34%14%27%32%16%29%17%5%27%10%32%11%20%39%24%22%11%3%EmploymentInvestm

40、ent Profit Turnover substantial decrease(more than 20%)decrease(5-20%)similar/unchanged(+/-5%)increase(5-20%)substantial increase(20%)2022202222Note:I dont know answers excluded3 The New China Story 12Looking back at Chinas core competitiveness in the past decades,it was mainly

41、 driven by low labor costs,lax en-vironmental regulations,and high capital productivity,which is still valid to some extent in Chinas current stage.However,these contributing factors to Chinas economic growth are slowly disappearing.In the real estate sector,for example,many enterprises have seen po

42、or cash flow due to the tightened control on loans by the Chinese government since 2020.In 2022,fixed asset investment in real estate fell by 10%.It is expected that real estate in China will take years to recover.The time for property speculation is also gone.Within this massive development,many fo

43、reign companies have built a solid presence in China based on the“Old China Story.”Foreign companies enjoyed a combination of labor and capital competitiveness,permissive regula-tions,and waves of planned boosts in certain B2B or B2C segments.The change in Chinas core competitiveness has signaled to

44、 the business world that this“Old China Story”is over.Yet we believe the fundamentals that have made multinational companies successful in China remain,augmented by new features,making a whole new China Story possible.FIGURE 3.1:The“Old China Story,”when Chinas core competitiveness was driven by low

45、 labor costs,lax environmental regulations,high capital productivity,and limited TFP,is over Source:Statista;World Bank;Roland Berger 3THE“OLD CHINA STORY”IS GONE“I have been working for about 30 years.In the past few years,the political instabil-ity has created an unstable business environment,whic

46、h hasnt happened in China since I come here.China had been a stable and reliable place for investment.Our board asked me what was happening in China,as they had no clarity”-General manager of a leading German industrial tools trading company.Uncertainty and unpredictability were never a feature of C

47、hinas 5-year plans for the economy.This instability has raised concerns among businesses operating in China.4 The New China Story 144.1 What Is the“New China Story”?Chinas Key Fundamentals Remain Resilient Despite short-term volatilities,the structural foundations of Chinas success remain resilient

48、and intact in the medi-um to long term.On the supply side,the competitiveness of the Chinese supply chain remains,and has even been improved due to the pandemic:Chinese and foreign companies invested heavily to modernize their production systems in 2021,when most of the global manufacturing was stil

49、l crippled by Covid-19 disruptions.The continuous surge in Chinese exports,even in 2022,demonstrates its resilience and competitiveness.Neverthe-less,since October 2022,Chinas exports have slowed down and dropped 8.7%in November compared to 2021,and the slow global demand is expected to continue unt

50、il 2023.Export may not be able to strongly support Chinas recov-ery in the short term.Yet,in the medium to long term,the Chinese manufacturing sector will remain a global force,thanks to enhanced,low carbon productivity and Asias leverage in the future.FIGURE 4.1:In 2021,China remained the worlds ma

51、nufacturing powerhouse,with 8.1%jump in GDP and 30%surge in exports Source:IMF;National Bureau of Statistics of China;Roland Berger 4A“NEW CHINA STORY”IS BEING WRITTENFIGURE 4.2:China exports remained resilient in the first ten months of 2022,but were hit in November by weakening global demand and c

52、ovid-19 disruptions Source:General Administration of Customs of the Peoples Republic of China;Roland Berger China has a huge domestic market and the corresponding demand.With 1.4 billion people and a fast-growing mid-dle-income class,as well as per capita GDP now exceeding 10,000 US dollars,China re

53、mains one of the worlds big-gest consumer markets with strong potential.It will also be strongly supported by government incentives,such as the Strategic Planning Outline for Expansion of Domestic Demand(2022-2035),launched at the end of 2022.FIGURE 4.3:Domestic consumption greatly contributed to Ch

54、inas economic growth in 2021,and still holds untapped potential Source:World Bank;Roland Berger The New China Story 15 The New China Story 16Decoupling:Limited on the Supply Side,Faster on the Demand Side We believe that the much-discussed supply chain decoupling will mainly affect the technology se

55、ctor,as we are witnessing an escalation in the US legislation towards high-tech sectors such as the semiconductor field.In the meantime,there is a certain level of supply chain diversification,triggered by three key factors:First,tightened risk management due to the increasing uncertainties creating

56、 supply chain bottlenecks.SecondChinas competitiveness compared to other countries in labor,technology,and infrastructure has decreased its added value.Lastly,econom-ic sovereignty concerns since the pandemic,more and more countries have put heavy emphasis on economic sov-ereignty,especially in stra

57、tegic areas,such as semiconductors,pharmaceuticals,etc.However,Chinese demand is increasingly decoupled from the rest of the world,demonstrating unique consumption patterns.It includes,but is not limited to,different cyclicity,increasingly localized production,Made in China for China,localized produ

58、ct design and features,unique digital and payment ecosystems,distinct innovation,etc.While China is developing into a singular market,its size and growth continue to offer opportunities for foreign com-panies.FIGURE 4.4:China has the worlds largest foreign exchange reserves,ensuring stability of for

59、eign trade and investment,and increasing resilience to financial risk Source:The Peoples Bank of China;Roland Berger“For the next few years,the first thing is strengthening independence and acceler-ating local decision-making.For example,digitalization is simply more advanced here.China has this new

60、 disruptive way of doing business with WeChat,e-shop,and Douyin (TikTok)for marketing and sales activities,which is very different from other markets,including our home market or the US market.”-General manager of a leading German industrial tools trading company.Furthermore,faced with external inst

61、abilities,China has the worlds largest foreign exchange reserves,which en-sures the stability of foreign trade and investment,and increases resilience to financial risk.4.2 Three New Economic EnginesThese changes mean that the“Old China Story”is no longer a guarantee of success for multinational com

62、panies.As China builds up new economic engines for the future,foreign companies must understand how the countrys econo-my is transforming.Industrial Modernization 2021 marked the start of Chinas 14th Five-Year Plan,where an increased emphasis was put on Chinas industrial modernization.Manufacturing

63、represents one-third of Chinas fixed asset investment.Between January to October 2022,manufac-turing investment grew by 9.7%-faster than the overall fixed asset investment growth of 5.7%.Out of the manufac-turing investment,investment in advanced manufacturing has increased by 24%.Chinas industrial

64、fleet is becoming increasingly automated,with the ratio of industrial robots installed per manufacturing employee approaching that of Sweden or Germany.Around 70%of the robots installed yearly still rely on imported or foreign design,providing vast market opportunities for multinational companies.Fo

65、reign enterprises thus have a good chance to remain a key contributor to Chinas industrial modernization,par-ticularly in fields such as industrial automation,robotization,and digitalization.FIGURE 4.5:China is accelerating industrial modernization,building up new competitiveness and productivity dr

66、iven by innovation Source:IFR;National Bureau of Statistics of China In more recently developed industrial sectors,Chinese companies are leapfrogging and gaining leadership positions worldwide,such as in the e-mobility value chain,from chemicals and materials used for batteries to electric vehi-cles

67、.The same can be seen for communication equipment,space equipment,and more:unlike the Old China Story,where the global supply chain was driven by Chinas productivity.In these sectors,the global supply chain will par-tially be driven by Chinese innovation.The New China Story 17 The New China Story 18

68、FIGURE 4.6:Since the launch of Made in China 2025,China has leapfrogged in many areas through unique advantages,but still lags in several sectors Source:Roland Berger The regionalization of trade is another important aspect of this major transformation and accelerated moderniza-tion,which also drive

69、s competitiveness.Cumulatively,ASEAN countries have become trade partners to China at an equivalent level to the EU,and surpassed the US.This shift is driven by Chinese and Asian manufacturing companies continuously searching for competitive advantage across the region.It is evident when reviewing t

70、he growth rate of Chinese investment in the region and manufacturing dominance.The Regional Comprehensive Economic Partner-ship(RCEP)treaty will accelerate this trend towards regionalizing trade.FIGURE 4.7:Chinas competitiveness also comes from regionalizing investment and trade Source:General Admin

71、istration of Customs of the Peoples Republic of China;Ministry of Commerce of the Peoples Republic of China Low-Carbon Development The fight against climate change is changing countries competitive advantage.In recent years,the carbon border adjustment mechanism and various tax approaches have been

72、and will be implemented worldwide.As a key export-er of manufactured goods to the rest of the world,China can keep this position and its growth engines only if it fur-ther decarbonizes.A new paradigm for competitiveness addresses the urgent need for climate action,which requires massive investments.

73、Chinese companies will have to accelerate the progress of energy transition and decarboniza-tion to maintain this competitiveness.Chinas double pledge to peak carbon emissions by 2030 and reach carbon neutrality before 2060 is the key to maintaining competitiveness,and will drive further acceleratio

74、n of the modernization process.Currently,China has considerably increased its share of renewable and nuclear electricity.With 33%of its power coming from renewable sources,China fares reasonably well compared to other industrial nations like South Korea,Vietnam,and the US,but falls short compared to

75、 Germany.FIGURE 4.8:The double pledge to peak and neutralize CO2 is key in maintaining Chinas competitiveness,and will drive further acceleration of the modernization process Source:EIA;Goldman Sachs;While Europe and North America have reached an emission peak,China has yet to do so.Therefore,China

76、has even less time to shift its production model.This will accelerate innovation,and the scope of the change will drive down the marginal cost compared to the rest of the world.This is not a new pattern:we have seen it before with solar PV modules and batteries.China has unique policies,technology,a

77、nd natural advantages in the fight against climate change.The long road to carbon neutrality will create abundant opportunities for global cooperation.Common Prosperity to Fuel Mass Consumption In recent years,the Chinese government has taken pragmatic and assertive measures to strengthen control ov

78、er several industries under the guiding theme of“common prosperity.”In the short term,these actions have raised concerns regarding Chinas business environment.The New China Story 19 The New China Story 20FIGURE 4.9:In recent years,the government has taken pragmatic and assertive measures to strength

79、en control over several industries under the guiding theme of common prosperity Source:Roland Berger While most analysts predicted aggressive tax or redistribution measures,this has not materialized.We believe in a different direction:increasing the size of the domestic market by expanding the middl

80、e class.It is not about redistri-bution or making the wealthy wealthier.Instead,its about introducing tens of millions of people on the fringe of the lower-middle class into the middle-class group.Chinas domestic consumption potential remains largely unleashed.China launched multiple pilot programs,

81、in Zhejiang and other provinces,introducing initiatives to shift the popula-tion from rural China into suburban areas and increase their disposable income.For mass-market brands,this trend could bring about numerous opportunities.FIGURE 4.10:Zhejiang aims to grow its middle class through increased e

82、conomic output as part of“common prosperity”Source:Roland Berger 4.3 China Will Be Back;MNCs Will Stay Revisions made to the industry catalogue(“2022 Catalogue of Encouraged Industries for Foreign Investment”)last year encourage foreign investment in key fields.It covered advanced manufacturing,high

83、-end technology,energy conservation,and modern services,which align with Chinas priorities.The country will also support foreign investors in establishing research and development centers in high-end and emerging technology fields.With increasing government support,foreign businesses can play a bigg

84、er role in tech innovation and scientific research,sharing global resources,and localizing innovation.If China holds up to its prom-ise of opening up,foreign companies will keep playing an essential role in the Chinese economy.FIGURE 4.11:China will be back,and multinational companies will stay base

85、d on a“New China Story”Source:Roland Berger Although China currently faces huge economic challenges and is still lagging in certain areas,we believe that,for most multinational companies,China remains an attractive market,a superior industrial cluster,and an increasingly efficient innovation hub.Eve

86、n though it is unlikely for China to replicate past booming decades,its key fundamentals remain robust and unique compared to many other markets.“We are convinced that China is leading the way in many areas of the sectors that we have involved in.The local for local strategy is not just to serve the

87、 local,but also to leverage our competencies and capabilities in China for the global market”-Senior vice president of a world-leading German multinational engineering and technology company.“Our company has been in China for nearly 30 years,and China is regarded as an important market.In the next f

88、ive years,a 12%-18%annual revenue growth of our business can be anticipated,and with the current global economic context,we be-lieve the local Chinese market has bigger growth potential than other markets in the world”-Managing director of a world-leading industrial system provider.The New China Sto

89、ry 2122 German Business in China55.1 The Foreign Business Footprint in China Remains Broad and Deep Foreign businesses footprint in China is broad and deep.Based on a report released by Hurun Research Institute in 2021,the sales of the Top 100 foreign companies in China represented 6%of Chinas GDP.A

90、mong them,45 companies were from Europe.In 2022,the foreign direct investment(FDI)into Chinas mainland was 189.1 billion US dollars-an 8%increase year-on-year.Notably,FDI in high-tech manufacturing surged 58.8%from the same period(January-November)in 2021,while that in the high-tech service sector r

91、ose 23.5%year-on-year.During that period,investment from Germany climbed by 52.6%.For most foreign companies in China,decades of development mean that the cost of leaving,scaling down,or even freezing investment in the medium term is too high;yet frequent black swan and grey rhino events make the bu

92、si-ness environment increasingly unstable.Companies in China are easily caught between urgency and uncertainty.Adaptation to the“New China Story”is a combination of risk anticipation and mitigation,and occasionally-evolu-tion of the business model.FIGURE 5.1:The foreign business footprint in China r

93、emains broad and deep,showing strong confidence in Chinas economy Source:Ministry of Commerce of the Peoples Republic of China;Hurun Report;Business Confidence Survey 2022/23 by German Chamber of Commerce in China;Roland Berger“China now represents 40%of the total world chemical market.Yet,in 2030,w

94、e will be talking about half of the global chemical market in China.I think this trend is unlikely to stop.Also,China aims to achieve 5%-7%GDP growth,which is certainly higher than the worldwide average growth rate.The trend will continue,so the mar-ket is here.The question is how to capture market

95、growth opportunities and fend off risks”-China president of a world-leading chemical company.5HOW CAN FOREIGN COMPANIES ADAPT TO THE NEW CHINA STORY?The New China Story 23 The New China Story 245.2 Risk Anticipation and Mitigation First,risks must be thoroughly screened and mitigated,and concerns ar

96、ound political and operational issues need to be carefully addressed.To help multinationals better understand the current situation,we introduced the“Onion Model.”The core idea of this model is to provide foreign companies operating in China with an evaluation framework.Through this frame-work,forei

97、gn companies can better recognize emerging and potential risks,evaluating whether these are managea-ble risks that could be mitigated with tailor-made measures,or unavoidable ones that should be dodged completely(i.e.,the“sensitive core”of the onion).FIGURE 5.2:Multinational companies face different

98、 risks in China;it is crucial to address and mitigate the risks by“peeling the onion Source:Roland Berger Multinational companies in China can use the“New China Story”features to screen their operating model and miti-gate risks.That being said,companies largely vary in industry,size,product,and tech

99、nology usage,subjecting them to specific risks.Each company thus requires deep analysis and tailored mitigation measures.Below are some risks many multinational companies face in China.Compliance with the latest regulations:the data and cyber-security measures,for example,with some am-biguous phrase

100、s open to interpretation,often calls for separating IT systems,functional applications,and data storage.It impacts B2B industrial companies less than B2C companies or companies that provide services to B2C companies,such as software companies.Sanctions:company and individual constraints and bans,mos

101、tly stemming from the US legislation,need to be factored in.Business segments and products with strategic sensitivity:Companies in specific technology sectors,con-centrated sectors,deserve specific attention.This also depends on the nature of local competition.FIGURE 5.3:Separate compliance rules fo

102、r all stages of data management,including collection,processing,storage,and transfer Source:Desk research,expert interview;Roland Berger FIGURE 5.4:Multinational companies in China can use the“New China Story”features to screen their operating model and mitigate risksSource:Roland Berger Certain ris

103、k mitigation measures can be developed:for example,JVs with relevant Chinese partners,local refinanc-ing and financing to transfer some accountability to Chinese shareholders and stakeholders,etc.Decision-making can be increasingly localized in parallel,sometimes with a separation of structures betw

104、een sensitive and less sensi-tive businesses,which also helps manage differentiated ownership structures.The New China Story 255.3 Evolution of Business ModelIncreasing local competition has been the focus of attention for many multinational companies operating in China.Local players are often recog

105、nized to have more agility,accelerated technological capabilities,cost advantages,and their product quality is quickly improving.Today,many multinationals face great challenges from external risks and local market competition.To mitigate the risks and strengthen competitiveness,sometimes the busines

106、s model of multinationals needs to evolve.Here,localization is key:localization of the entire decision-making process,including R&D,production,go-to-market,and deeper connection with Chinese consumers and the local ecosystem,helps adapt to a market that sometimes diverges from European or American p

107、ractices.With rising competition from local players,multinational companies need to further strengthen their innovation capabilities to remain competitive in the Chinese market.FIGURE 5.5:Engagement and business models of foreign companies in China are evolving to adapt to the “New China Story”Sourc

108、e:Roland Berger Some companies choose to isolate themselves from the end-user markets and become tier 1 or tier 2 suppliers.Each of these examples is associated with very specific situations,and there is no one-size-fits-all.“We have reached an 80%localization rate of our parts in China.For the next

109、 step,the keyword is local engineering.We must grow together with OEMs in China.The specification changes a lot during the development,so you must adapt very quickly to the local needs”-President of China of a world-leading German automotive supplier.The New China Story 265.4 Real Client Case of Ris

110、k MitigationSupplier A is a leading global automotive supplier operating in China that provides traditional and intelligent parts such as advanced driver-assistance systems(ADAS).In recent years,this supplier has faced challenges in operating environment changes,such as data regulation,invest-ment r

111、estrictions,supply chain localization,and government bias for local core technology.FIGURE 5.6:Supplier A is a leading global automotive supplier and is facing challenges in operating environment changes Source:Roland Berger Therefore,to better adapt to local challenges and seize new opportunities,t

112、he situation calls for an evolution in sup-plier As organizational structure.FIGURE 5.7:We suggest supplier A evolves its organizational structure to address local challenges and seize new opportunities in China Source:Roland Berger The New China Story 2728 German Business in China6With profound and

113、 complex changes in the global environment and increasing competition in the local Chinese market,foreign companies China operations face growing challenges.Yet Chinas rapid development and pledge to reopen will bring plenty of opportunities for both Chinese and foreign companies.To better manage ri

114、sks and seize growth opportunities,It is essential for foreign businesses to understand Chinas evolution and its unique features.Doing business in China has undeniably become more difficult for foreign and Chinese companies in recent years,but the fundamentals operating in the Chinese market remain

115、favorable.Adapting operating and business models to the“New China Story”is imperative to cope with the economys short-term difficulties and turbulent movements.“It is very clear that our position on China is unchanged.China is a very important market and we will continue to dedicate ourselves to thi

116、s market.We will continue to follow our strategy in terms of an enhanced local-for-local footprint.There is a fa-mous quote about China saying,everything is possible,but nothing is easy.I trust it summarizes Chinas prospects quite well.If you are willing to make an effort and address the opportuniti

117、es in a positive,embracing way,China is still the region and the country that provides plenty of opportunities.We will continue to take those chances for our company in China”-Senior vice president of a world-leading German engineering and technology company.Therefore,the China strategy of foreign b

118、usinesses needs to evolve accordingly,adapting to the“New China Story”with adjustments to fit companies unique frameworks.Foreign companies in China can consider three strategic op-tions to stay competitive and achieve sustainable growth in the medium to long term:China-Plus-One strategy:Supply chai

119、n disruptions and geopolitical tensions saw an increased need for a balance between market potential,cost efficiency,and supply chain resilience.One way to balance those factors is to extend the footprint within the region with the China-Plus-One strategy:remaining in China while engaging within the

120、 Asian region.This strategy al-lows companies to mitigate supply chain risks,especially when operating globally.While the Chinese market has the potential to satisfy ones production capacities,serving the global market from only one facility might be too risky in the future.While striving for the Ch

121、ina-Plus-One strategy might increase the costs in the short and mid-term,it will create more resilience in the future,which can decrease the risk premiums towards investors and customers in the long term.Furthermore,it could serve as a competitive advantage against local competitors,which often have

122、 a local footprint only.Other advantages of the China-Plus-One strategy lie in the opportunity to better serve other local markets,adapt to local requirements and customer needs,and react faster to changing market needs.This would decrease the reli-ance on a single market and bring new business oppo

123、rtunities in Asia.6SUMMARY AND STRATEGIC OPTIONS The New China Story 29Due to the growing Chinese market and rising opportunities,foreign companies are still required to invest in the country to keep up with the market needs and remain significant market players.However,diversification requires sign

124、ificant capital and internal management resources,such as navigating new laws,new markets,and streamlining the business over multiple locations.Therefore,engaging with new markets takes time,and should be done grad-ually rather than overnight.One possible approach could be establishing a single prod

125、uction first,then extending process capacities until fully operational.A disadvantage of the China-Plus-One strategy is that,due to the increase in costs(such as capital expenditure costs,management resources,reduction of the economy of scales,etc.),the competitiveness of the Chinese and global mark

126、ets could suffer.German companies pointed out the risk that local competition would benefit if cost structures were higher(due to the China-Plus-One strategy)for foreign companies in China and globally.Companies must ana-lyze the pros and cons of this strategy to find the right balance between risk

127、mitigation and remaining competitive in China and the global markets.Develop a winning value proposition through innovation:Innovation and technological advancement have been key for foreign companies looking to succeed in China in the past decades.By collaborating with local partners that are part

128、of Chinas innovation ecosystem,foreign companies can stay competitive by optimizing existing products and creating innovative products and services with possible integration into their global portfolios.Faced with rising competition from local players,foreign companies need to accelerate local innov

129、ation,leveraging their existing global competencies to keep this advantage for further devel-opment in China.Local-for-local strategy:The“Local-for-local”strategy is a key success factor for foreign companies looking to strengthen their positioning and competitiveness in China.It calls for a new or

130、partially new system separated from Europe or the US,from cen-tralized and global R&D,production,supply chain,and logistics to sales and services.For the manufacturing industry,such as the automotive sector,the rise of Chinese players in electrification made traditional foreign suppliers transform i

131、nto close partners of the OEMs growing together in the Chinese market.New products are developed through a joint effort with new technical specs and standards.Innovation in China will not only benefit foreign companies China operations,but also strengthen their global competencies and competitive-ne

132、ss.For consumer goods sectors,the shifts in Chinas consumer groups-such as the increasing purchasing power of the new generation(e.g.,Generation Z)-call for the evolution of engagement models of foreign companies.From brand recognition to brand interactions,Chinas new generation is seeking a differe

133、nt experience,providing an opportunity for foreign consumer brands to reassess their positioning,rethink their engagement approaches,and redesign their products and go-to-market strategies.To support foreign companies in China,it is important that China continues its reform and opening policies;lift

134、s restrictions on certain sectors;creates a more level playing field(e.g.,public pro-curement);continues to improve IP protection;enables growth through decarbonization by setting clear policies and goals in green energy;promotes revisions to the household registration system for talent development,

135、and improve vocational training,among others.For many foreign companies,their China operations contribute significantly to their global profit contribution.For those organizations,it is crucial to strengthen the resilience of their China operations just as they mitigate risks for their global operat

136、ions.As local companies become increasingly competitive,adapting more to the Chinese market is the logical response.The local-for-local strategy can empower foreign companies China operations to act faster,be more customer-oriented,and cost-efficient,while increasing the resilience of the supply cha

137、ins for the Chinese operations.China offers a comprehensive ecosystem of innovative technology,service providers,and excellent tal-ents to execute local R&D.With all the advantages the local-for-local strategy brings,foreign companies must find a balance between becom-ing more competitive in China a

138、nd keeping their foreign DNA-which is often what made them successful in the first place.The strive for quality,reliability,and good governance should not be sacrificed,nor should the companys core values.The New China Story 30CONTACTSAHK Greater China(Chinese)Chamber South&SouthwestChamber East Chi

139、naChamberNorth ChinaAHK Greater ChinaAHK GREATER CHINA AHK Greater China is part of the German Chamber of Commerce and Industry(DIHK)and the network of over 140 German Chambers of Commerce Abroad(AHKs),which includes 140 offices in 94 countries.Our history stretches back to 1981,when the first offic

140、e was opened in Taipei.With a team of 150 employees based in 12 locations,we focus on trade and investment between Greater China and Germany.As#PartnerForGrowth,AHK Greater China offers a wide range of solutions in the areas of market entry and market expansion.We advise,support and represent German

141、 companies that want to establish or expand their business in China.Our service portfolio includes market entry support and incubation solutions;strategy consulting with a focus on market analysis,policies and regulations,and competitive environment;organization of business delegations to China;trad

142、e fair services;professional vocational training programs;as well as HR services for corporate clients across all sectors.The German Chamber of Commerce in China is the leading platform of German business in China.The Chamber represents the interests of its 2,100 members and helps them succeed by ho

143、sting informative events,providing up-to-date market information,and offering practical advice.Office LocationShanghaiPingan Riverfront Financial Center,29F 757 Mengzi Road Huangpu District,200023 Shanghai T+86 21 5081 2266 china.ahk.deOffice LocationBeijingDRC Liangmaqiao Diplomatic Office Building

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145、orate Communications T+86 10 6539 6670 mingle.carinachina.ahk.deFor up-to-date information about the German business community,activities and events of the German Chamber,updates on policies and economic changes,and much more,follow the German Chamber of Commerce on WeChat and LinkedIn.The New China

146、 Story 31Contact for Further InformationJacob Shao Strategy Consultant T+86 189 6401 0141 shao.jacobchina.ahk.deContact Information The New China Story 32ABOUT ROLAND BERGERRoland Berger,founded in 1967,is the only leading global consultancy of German heritage and European origin.With 3,000 employee

147、s working from 35 countries,we have successful operations in all major international markets.Our 51 offices are located in the key global business hubs.The consultancy is an independent partnership owned exclusively by 320 Partners.Roland Berger supports leading international corporations,non-profit

148、 organizations and public institutions in all management issues-ranging from strategic alignment and introducing new business models and processes to organizational structures and IT strategy.Roland Berger is based on global Competence Centers that are organized along functional and industry lines.T

149、his allows us to offer tailor-made solutions devised by our interdisciplinary teams of experts drawn from different Competence Centers.At Roland Berger we develop customized,creative strategies together with our clients.Providing support in the implementation phase is particularly important to us.In

150、 so doing,we create value for our clients.Thats why our approach is based on the entrepreneurial character and individuality of our consultants.All employees at Roland Berger strive to adhere to our three core values:entrepreneurship,excellence and empathy.The Chinese market is a key pillar of Rolan

151、d Bergers international expansion.Since our first project in China in 1983,the consultancy has grown rapidly:The five Chinese offices(Shanghai,Beijing,Hong Kong,Taipei and Guangzhou)now have hundreds of consultants dedicated to working extensively with both leading Chinese and international companie

152、s.As the only consulting firm of European origin among the global Top 5,Roland Berger has built its expertise on its extensive experience working with clients on complex business cases for over 50 years.Outstanding strategic analysis and in-depth knowledge on implementation measures are the strength

153、s of the companys consulting approach.Roland Berger consultants combine their analytical and strategic know-how within a diverse company setting to help clients in Greater China successfully master their unique challenges.Beijing OfficeUnit 7-11,45F,Building 3B,China World Trade Centre 1 Jianguomenw

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