The Symbiotic Relationship Between China and Multinational Corporations
release time：2023-11-02
The Symbiotic Relationship Between China and Multinational Corporations
GAO FENG ADVISORY
The Beginning
While China’s WTO accession (2001) is widely seen as the turning point for Western multinational corporations (MNCs) investing in China, MNCs began entering China as early as the 1990s—first in small numbers, then in droves. A pivotal event preceded this wave: Deng Xiaoping’s 1992 Southern Tour, which reinvigorated China’s reform and opening-up drive.
In January 1993, Boston Consulting Group (BCG) opened Shanghai’s first government-authorized office of an international strategy consulting firm, a landmark achievement at the time. As the partner in charge of BCG’s Shanghai office and China practice, the author witnessed firsthand the influx of MNCs, which were drawn to China for two key reasons:
- A potential low-cost sourcing base for global supply chains;
- A nascent but fast-growing consumer market, with economists predicting decades of double-digit GDP growth.
China’s Economic Context in the 1990s
China was at an economic inflection point: recovering from a prolonged downturn, with an economy still dominated by state-owned enterprises (SOEs) operating under a planned economy framework. Private enterprises were small and lacked modern corporate management knowledge, and the 1992 draft Company Law meant modern corporate governance was a new concept for most Chinese.
The Critical Pre-WTO Period (1993–2001)
This era marked the first meaningful exchanges between China and the West, a period of adjustment for two vastly different systems and cultures. The Chinese government and foreign businesses experimented, learned from each other, and adapted—with MNCs showing varying levels of resilience (some thriving, some failing, some confused). Despite myriad challenges (high inflation, large-scale SOE restructuring and layoffs, a banking system burdened with non-performing loans), most MNCs recognized China’s strategic importance and pressed ahead.
WTO Accession: A Watershed Moment (2001)
China’s WTO entry accelerated reform and opening-up, triggering a flood of MNC investment. Foreign direct investment (FDI) and China’s overseas trade surged dramatically in the years that followed. By the late 2000s, MNCs had established a significant presence in China, expanding beyond manufacturing, sales, and marketing to include R&D and product development.
MNCs’ Performance in China
Today, MNCs’ performance in China falls into three distinct categories:
1. Failed to Achieve Sustained Success
These MNCs have either exited China entirely or maintained only a small presence, spanning consumer goods, retail, appliances, electronics, and automotive sectors. Key failure reasons:
- Misalignment of products/business models with Chinese consumer preferences;
- Inability to compete with local Chinese companies;
- Weak on-the-ground leadership teams;
- Failure to balance global headquarters control and local team empowerment.
2. Crossed China’s “Red Lines”
These companies knowingly or unknowingly violated China’s regulatory or social norms, facing consumer boycotts or government sanctions:
- Xinjiang cotton incident (2021): Foreign apparel/sportswear brands that endorsed unproven “forced labor” allegations were boycotted; some (e.g., Adidas, Nike) partially regained market share, while others scaled back operations.
- Retaliatory sanctions: US semiconductor and manufacturing equipment companies faced Chinese sanctions in response to US restrictions on China; e.g., US memory chipmaker Micron Technology was targeted due to its large China presence.
3. Achieved Great and Lasting Success
These MNCs have thriving China businesses (driven by local sales, global supply chain positioning, or both), with China becoming one of their largest—if not the largest—global markets. Success factors include:
- Adapting to the Chinese market’s unique needs;
- Building world-class local teams;
- Striking the right balance between global headquarters and China operations.
For many top MNCs, China accounts for a significant share of global revenue (e.g., Starbucks >26.2%, Intel 27.0%, BMW 29.3%), underscoring China’s irreplaceable role in their global strategies.
MNCs’ Contribution to China
MNCs have made profound and multifaceted contributions to China’s development over the decades:
1. Introducing New Products, Business Models, and Lifestyles
Many now-common products were once novelties/luxuries: Coca-Cola was a gift item in the 1980s; KFC’s 1987 Beijing Wangfujing store saw long lines for “genuine American food”; Volkswagen’s Santana and GM’s Buick were regarded as luxury cars; Motorola/Nokia dominated the early mobile phone market. These brands shaped Chinese consumer culture and lifestyles.
2. Boosting China’s Export Ecosystem
US retailers like Walmart and Target sourced goods from China, spawning clusters of Chinese export suppliers and building China’s reputation as a global manufacturing base.
3. Bringing Modern Management Concepts and Practices
MNCs hired and trained local Chinese staff, offering career development opportunities and introducing Western management techniques, corporate governance, and international business norms. This nurtured a new generation of Chinese managers, some of whom went on to become international executives at global MNCs.
4. Spurring the Development of Professional Services
Western professions such as legal services, auditing, and consulting entered China alongside MNCs, aligning Chinese business practices with global standards and benefiting local enterprises as much as the MNCs themselves.
What China Contributed to MNCs
China’s development has been equally transformative for MNCs, offering two core value propositions: a large, fast-growing consumer market and an efficient, low-cost global supply chain hub.
1. A Critical Market and Sourcing Base
For many MNCs, China became their top growth market or the epicenter of their global supply chains. Low-cost, high-quality Chinese manufacturing helped Western countries (especially the US) keep inflation low for decades—though this came with environmental costs that China is now addressing with significant resources.
2. Driving MNCs’ Global Competitiveness
China’s rapid innovation has forced MNCs to learn and adapt. Chinese entrepreneurs and managers, eager to catch up with global best practices, initially experimented with copying Western products but quickly evolved to indigenous innovation:
- Internet/digital innovation: E-commerce, mobility, social media, online payments, and local services (driven by PC and wireless internet adoption) created global tech industry trends.
- Hard tech innovation: China emerged as a leader in robotics, automation, new energy, 5G, AI, blockchain, biomedicine, and new materials, with a world-leading number of patent registrations—fueling the “Fourth Industrial Revolution, Made in China.”
In just two decades, Chinese businesses built a formidable global reputation for innovation, prompting Western MNCs to reverse their mindset from “teaching” to “learning” from China.
Continued Reform and Opening Up
China’s reform and opening-up, initiated by Deng Xiaoping and continued by subsequent leaders, is a historic, experimental social development program (described by Deng as “Cross the river by feeling the stones”). Its progress for foreign businesses can be measured by two key metrics:
- Product market degree of freedom: The ability to sell products in China, set prices, and choose distribution channels;
- Ownership degree of freedom: The ability to own and operate businesses in China (from joint ventures to wholly-owned enterprises).
From Restriction to Openness
In the 1990s, most sectors were closed or partially open: foreign companies in retail, auto parts, pharmaceuticals, and logistics needed joint ventures; foreign automakers were limited to two joint ventures with a 50% ownership cap; insurance companies lobbied for licenses in anticipation of market opening. Only a few sectors (e.g., consumer goods, excluding carbonated drinks) were fully open.
Today, nearly all sectors are open to foreign investment, with most allowing wholly-owned operations:
- Foreign automakers no longer require Chinese partners;
- Previously closed sectors (banking, insurance, asset management, oil and gas, chemicals) are fully open;
- At the 2023 Third Belt and Road Forum, China announced the elimination of all foreign investment restrictions in the manufacturing sector, a historic step in opening its economy.
The Symbiotic “Win-Win” Relationship
MNCs like Apple and Tesla exemplify the symbiotic China-MNC relationship: China offers a massive market and manufacturing/supply chain capabilities (enabling export of Chinese-made products globally), while MNCs build extensive local supplier ecosystems, co-create intellectual property, and generate employment. Other examples include Volkswagen, Daimler, BMW, Honeywell, Reckitt, Intel, Coca-Cola, and Starbucks:
- Honeywell’s China business grew 10x in 15 years (early 2000s onward), making China its top growth market;
- Reckitt’s China business became its second-largest market in a decade;
- Yum Brands spun off its China business (Yum China Holdings) in 2016 due to its massive scale.
Addressing Misconceptions and Challenges
- IP theft allegations: Isolated cases exist (as in all nations), but there is no evidence of large-scale, state-sponsored IP theft. Notably, foreign companies have also copied Chinese IP (e.g., Facebook Reels vs. TikTok, Walmart/Elon Musk’s “super app” plans modeled on WeChat).
- Regulatory complexity: Local interpretations of central government policies create implementation variations (e.g., healthcare product pricing), causing occasional confusion for MNCs.
- Rise of Chinese competitors: MNCs initially underestimated Chinese companies, which learned rapidly from MNC collaborations and eventually surpassed their mentors in many sectors. Some MNCs blamed protectionism or “underhanded” competition, but this reflected a failure to recognize China’s innovation speed.
Chinese companies have risen across all sectors—new retail (Haidilao, Luckin Coffee), smart phones (Huawei, OPPO), auto/mobility (BYD, NIO), advanced manufacturing (CATL, Midea), and big health (Ping An Good Doctor)—becoming fierce global competitors.
Era of Mega Changes: Shifting Global Dynamics
The End of Unfettered Globalization
The 1990s and 2000s saw rapid globalization, with Chinese businesspeople focused on “aligning with international tracks.” This shifted in 2017, a watershed year:
- US President Trump imposed tariffs on Chinese imports and sanctioned Chinese companies;
- President Biden escalated sanctions, particularly on high-end semiconductors;
- Western politicians coined buzzwords like “decoupling,” “deglobalization,” “reshoring,” and “de-risking”;
- COVID-19 further disrupted global supply chains and cross-border cooperation.
Tipping Points: A New World Order Takes Shape
Over the past five years, unprecedented global changes (geopolitical tension, economic uncertainty, technological disruption) have reshaped the world order, with China’s rise as an economic power as a key driver. Two major economic milestones highlight this shift:
- In 2021, the BRICS nations’ combined GDP (on a purchasing power parity basis) exceeded the G7;
- In early 2023, China’s exports to Belt and Road countries surpassed its exports to the US, Europe, and Japan combined.
China’s Evolving Global Role
- Supply chain transformation: Labor-intensive supply chains have left China, but new high-value supply chains (new energy vehicles, renewable energy equipment, electrical instruments) have emerged.
- Currency internationalization: The Chinese yuan surpassed the euro in 2023 to become the world’s second-most used currency in SWIFT trade settlements, challenging the US dollar’s dominance.
- Technological self-sufficiency: Huawei’s 2023 launch of the Mate 60 Pro (with a self-developed 7nm chip, 5G, and satellite call support) marked a breakthrough in China’s semiconductor industry, despite US sanctions.
- BRICS expansion: In 2023, BRICS invited six new members (effective 2024), making the grouping represent >40% of the global population, 25% of global GDP, and one-third of global economic growth. It unites manufacturing power (China), energy producers (Russia, Saudi Arabia, Iran), agricultural exporters (Brazil, India, Argentina), and nations with rich mineral/rare earth reserves.
Why China Remains Irreplaceable for MNCs
- EV and advanced manufacturing: China is a global leader in EVs, battery technology, and intelligent vehicle connectivity; global automakers (e.g., Ford) view a China presence as imperative to avoid marginalization.
- Semiconductors: The Chinese market is irreplaceable for US firms like Intel and Nvidia; US sanctions have distorted the industry’s economic logic, harming Western semiconductor companies.
- Corporate and financial commitment: High-profile visits by Tesla’s Elon Musk and JP Morgan’s Jamie Dimon in 2023 signaled US business and finance’s priority on China engagement; TSMC’s Morris Chang noted that US-China decoupling would “slow down everybody.”
The Rise of the Global South
The middle class is booming in the Global South (e.g., ASEAN’s middle class is set to double to 334 million by 2030), shifting global demand for consumer goods, industrial products, and services away from the West. China, as the anchor of the Global South, is driving this shift:
- South-South trade: Growing agricultural and consumer product trade among Global South nations (e.g., Brazil, Argentina, Russia).
- Manufacturing diversification: China’s manufacturing prowess is spreading to Global South nations (Vietnam, Thailand, Mexico, Morocco), particularly in EVs and consumer goods.
- De-dollarization: The use of domestic currencies for international settlements is accelerating; the US dollar’s privileged status is eroding, with the yuan playing an increasingly prominent role in the Global South (full de-dollarization is unlikely in the near term).
Looking Forward
China’s Economic Standing and Global Contribution
- China is the world’s second-largest economy (GDP: US$18 trillion, 2022), with primary/secondary industry value (US$8.5 trillion) more than double that of the US (US$3.6 trillion).
- The IMF projects China will remain the world’s largest contributor to global economic growth (22.6% of total growth) from 2023–2028.
- China has demonstrated an alternative, accessible growth path for developing nations, inspiring global south countries to pursue industrialization and innovation.
The Future of China-MNC Symbiosis
The China-MNC relationship will remain a linchpin of global business and commerce, but MNCs must adapt to a rapidly evolving multipolar world:
- Adapt and evolve: MNCs must redefine their role in China’s strategy and the Global South, moving beyond traditional sourcing and market access to co-innovation and local partnership.
- Learn and cooperate: The MNC mindset has shifted from “teaching China” to “learning from China”; competition will remain fierce, but cooperation (on AI, climate change, and supply chains) will be critical for success.
- New global competitors: Companies from the Global South will emerge as new MNCs, joining Western and Chinese players in the global marketplace.
Global Challenges Require International Cooperation
Despite “decoupling” and “de-risking” rhetoric, cross-border issues (climate change, AI governance, data sovereignty, public health, the digital divide) demand global coordination. China’s Global Artificial Intelligence Governance Initiative is a step toward addressing these challenges.
The Core Takeaway
China’s reform and opening-up has benefited MNCs, and MNCs have been integral to China’s development—a mutually beneficial symbiosis that has driven globalization and enriched people and businesses worldwide. Business leaders must separate inflammatory “China noise” from economic reality: the true risk is not doing business in China, but misreading or neglecting the shifting global landscape.
In the new world order, the center of global economic gravity is shifting back to Eurasia, with the Global South emerging as a powerful force. The China-MNC relationship will be renewed, and both sides will continue to learn, adapt, and cooperate—ensuring stability and development in international business for decades to come.
About the Author
Dr. Edward Tse is the Founder and CEO of Gao Feng Advisory Company, a pioneer in China’s management consulting industry. He built and led the Greater China operations of BCG and Booz for 20 years, consulting hundreds of Chinese and foreign companies, investors, start-ups, public-sector organizations, and Chinese government agencies (as well as the World Bank and Asian Development Bank). He is the author of hundreds of articles and six books, including the award-winning The China Strategy (2010), China’s Disruptors (2015), and Strategic Thinking in the Era of Mega Changes (2022) (《变局思维》).
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