China Business Forecast 2024
China Investment Environment & MNC Reaction
Time for Action and Determination
Engage & De-risk
November 2023
www.InterChinaPartners.com
Confidential
0
InterChina is a leading corporate finance boutique with a sole focus
on China, and one of its kind
 Two complementary business practices
(cash flow, cross referrals, knowledge
sharing):
 Founded in 1994,
the first boutique
business advisory firm
in China.
 Sustainable business
model proven for
30 years.
 Independent boutique
with 8 partners.
Origin
Corporate
Finance
Cross-border
acquisitions &
divestments.
Consulting
Opportunity,
growth &
improvement.
 Focused on 6 sectors (deep experience,
knowledge and networks):
 Clients: Multinational (strategic and PE),
Chinese (listcos, POEs, PE).
Business Model
45
Professionals in our offices in
Beijing and Shanghai, 1/3 with
>10 years tenure.
650
Strategy projects delivered, and
the leading alternative to global
consulting firms.
220
Transactions closed, and top 3
advisor in our field (USD 9.5
billion aggregate value, 6~10
deals/year).
USD
50~300
million
M&A transaction value range.
2
3
Of engagements with returning
clients.
Performance
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Executive Summary: 81% of MNCs committed to China.
The new China formula: Engage, Localize, De-risk
Survey
results
+
Engage
Scale x Relevance
Localize
Innovation
>50% of MNCs aim to
double (or more) their
China sales in next 5 years.
2x
Big jump in more DoA
allocation for R&D
and product portfolio
management expected.
M&A
Customer mix-
An important
instrument
for many to
reach scale.
50% of
70%
of MNCs pursue
Inorganic Growth .
Local ecosystems
Investment in local
innovation ecosystems,
incl. VC and funds,
continues.
10%
already doing
20%
MNCs want to
increase share of
local customers
Higher localization
Work with CN globalizers
IT systems
50% of MNCs will work actively with local
globalizers to help them in other markets.
IT systems
independent from
global system (incl.
data storage)
Source: InterChina Survey with 271 MNC executives (Oct 2023).
of MNCs, China sales
will be driven by
locally-developed
solutions.
65%
want to or
will decouple China
variable contribution
margin from global to
remain competitive.
De-risk
Diversification
50%
of MNCs diversify the global supply base
in some way or form, with the priority to
duplicate rather than shift operations out.
Financial management
50%
of MNCs
repatriate more
China dividends;
… 50% is
increasing the share
of RMB financing
(local bank loans,
non recourse).
Strategic Chinese partner
Supply chain
planning to
Automotive T1s  Industrial Groups
>80%
+
Replacement of
local MNC suppliers
with real Chinese
suppliers.
36%
already done
23% planned
Shouldering risk and
exposure, as well as
enhancing market
access chances has
become important
Local IPO
A new trend to manage
geopolitical risks,
explored by several
dozens MNCs currently.
43%
are planning equity
partnerships with
Chinese companies
5%
of surveyed MNCs
consider an IPO
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Executive Summary. CEO Agenda 2024
1
What are the factors determining my ‘New China Playbook’? Do I go or do I stay?
How strategic is China for me and how strong is my position? Can I afford not to be in China? Am I active in
the ”Open” or “Restricted China”? Do I perform in the “New Growth” or “Deep Consolidation China”? What is
my customer’s perception of my risk?
How do I engage?
2
3
How do I remain/become relevant (scale)? Should I consider alternative M&A models to achieve scale and
localization, or to de-risk (minority participation, listed co’s, stock listing, corporate VC and participation in the new
Ecosystems)? What about globalization of Chinese companies: is that a sales/partnership opportunity, or a
competitive threat, or both?
How do I localize?
What does it mean to be “more Chinese” for me? Political vs commercial localization; How to localize innovation,
R&D and IP? DoA vs control; Do I have the right customer mix? How to address better Chinese customers? Can I
accept lower margins in China?
How do I mitigate risk?
4
5
How to de-risk my supply chain in China and globally: global sourcing in China ‘by choice’, and 100% local sourcing
for China; portfolio re-assessment incl. divestments; balance sheet de-risking: Rmb exposure, local financing; IPO?
partnerships and JV’s; How do I deal with stakeholders in relation to China, in particular financial markets/analysts
& employees; autonomy of local operation in case of crisis;
How can I achieve and/or maintain alignment between HQ and China teams?
What governance model allows us to be close to China, but still retain our corporate DNA?
What can I learn from MNC best practices in building alignment? How regular should global management visit? How
can I leverage the renewed interest of employees for overseas assignments?
Source: InterChina Analysis.
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3
Voices from Global and China CEOs
We see China as an innovation driver
and a business driver not just for local but
also for global sales. Furthermore, we
have to be competitive in China or we lose
out globally against Chinese players - if you
can’t beat them on their home turf, you will
lose globally.
Global Board Member, Industrial Autom. MNC
China is a growing and profitable market
for us. In addition, we have to be in
China as it is the source of new
technological developments in our
sector, and it is also the cost leader for
production equipment.
Can we afford not to be in China?
By the end of 2023, this market will
be bigger than the USA and Europe
together for our product category.
We are aware of the risks… we
accept them. Now it’s time for
action.
Global CEO, F&B MNC
Quotes
from MNCs
Global CEO, European Equ. MNC
My worst nightmare is to know that I will
significantly outpace my industry’s growth
and profits in the next 3 years… and still
my market quota will decrease. I need to
participate
in
the
industrial
consolidation that is taking place in my
sector.
HQ CEO, Chemical MNC
Source: InterChina.
It has never been a more critical time for
MNCs in China than now… the global
geopolitical situation is sour, the global economy
is not doing well, the Chinese economy is not
doing well, and Chinese competitors, including
national champions are advancing at lightspeed.
China CEO, Diversified Industrial Groupc
Industrial consolidation in our industry will
present a lot of opportunities but it will be
very risky as well. We see a wide
polarization in terms of end customer
performance .. The selection of which sectors
to invest is more and more important every
year for our group.
China CEO of Smart Electronics MNC
China remains a global priority.
We have been in the market for 20
years, but there is still a
substantial organic and inorganic
growth opportunity for us as long
as we focus our resources on the
trends.
HQ CEO, Ingredients MNC
We are used to be best in class, but we now
have local competition that we need to regard as
our pacing threat, particularly in terms of
meeting customer needs at speed. So, our
operating model will have to transform to
stay competitive.
HQ CEO, Additives MNC
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Sources of our analysis
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5
Sources of this report (1/3): InterChina’s exclusive survey with 271
MNC executives in China and HQs, conducted in October 2023
Survey
results
Survey with local and global executives of larger MNCs (majority >USD 100 m sales in China and >10% global revenue from
China). Beside China executives, we ran a separate survey with global CEOs.
Conducted in October 2023. Total respondents N = 271.
Respondent origin
In which country is your
group’s HQ located?
9%
Sweden
7%
France
6%
Italy
UK
Switzerland
6%
3%
3%
Other European
8%
Greater China
9%
Asia / APAC
3%
86%
Spain
72%
Large
equ.
14%
Automotive
14%
Materials
Asia
4%
Consumer goods
Healthcare
Business services
HQ
24%
ICT
Private equity
Others
USD 1 bn
and above
23%
USD
501 m - 1 bn
12%
USD
101 - 500 m
27%
USD
51 - 100 m
9%
USD
10 - 50 m.
21%
China exposure
How much does China
currently contribute to
your global sales?
>30%
12%
20 - 30%
12%
11 - 20%
27%
5 - 10%
26%
<5%
23%
51%
30%
19%
Size in China
What are your current
sales in China?
62%
Germany
Sectorial mix
Which sector do you
classify your company as?
Industrial
parts
15%
Mainland China
North America
(USA, Canada)
Place of work
Where are you
personally located?
18%
11%
8%
4%
1%
3%
7%
USD
1 - 10 m.
8%
Industrial parts: Industrial components, assemblies, light equ. Large equ.: Power generation, machine tools, automation, production machinery. Automotive: Vehicle makers, T1/T2 component maker. Materials: Ingredients,
chemicals, metals, composites, textiles).. Consumer goods: F&B, durables, retail, services. Healthcare: Pharmaceuticals, medical devices, diagnostics. Business services: Testing, logistics, financial. ICT: Hardware, software.
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Sources for this report (2/3): Original insights from the market
through projects executed by InterChina’s Strategy Practice
Highlights of strategy projects over the last 12 months
China transformational
growth strategy for an
int’l packaging group
China NEV market
opportunity assessment
for a European
materials company
Call-for-action study for
a transformational
strategy for an int’l
automotive T1 player
Source: InterChina.
China 2030 opportunity
assessment along >20
application areas for an
int’l industrial group
Strategy for securing
future energy for a
plant of an int’l
automotive component
maker
Engage and derisk
options via
benchmarking with
other players for an int’l
automotive T1 player
Competitive landscape
mapping for new tech
areas for a leading int’l
mining equ. company
Market screening for
targets and partners for
an int’l IVD player
Categoric opportunity
assessment for a
specialty oils and fats
player
China hydrogen market
opportunity assessment
and entry strategy for a
compressor maker
Market research on the
Chinese sports industry
for a country
association
Market outlook and
competitive assessment
for an int’l chemical
compound maker
China go-to-market
strategy for an US
clinical skincare brand
Situational assessment
and growth strategy for
a US F&B brand
City-level market
forecast for a building
automation player
•
Strategic re-evaluation
of the China business
•
Define new strategies
for a changed China
•
Mapping out the growth
areas for 2030
•
Understand the right
engagement mode (i.e.
the right partner profile)
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Sources of this report (3/3): Lessons learned from successful
deals closed by InterChina’s Corporate Finance Practice
InterChina’s deals closed in the past 12 months
A world's leading
industrial group
Europe
A German-fund owned
wire company
China
Invested into
obtained credit loans from
A China local premium
precision tool brand company
China
Multiple local
commercial banks
China
Buyer advised by
Lender advised by
Gränges
Global Leader in Aluminum
Technology
Acquisitions
and
Debt
Advisory
Sweden
established a JV with
SIG Metal Yunnan
Manufacturer of aluminum
alloys
China
Gränges was advised by
InterChina
Timken
Global Bearings Manufacturer
Restructuring
and
Divestments
USA
Spain
Divested one of its subsidiaries to
CGN
Leading Chinese Nuclear
Energy Company
China
China
Timken was advised by
Tecnatom was advised by
InterChina
Source: InterChina.
Tecnatom
Nuclear Inspection Company
divested its stake in
Zhejiang Tianma
Bearing Group
InterChina
InterChina
InterChina
A healthcare-focused PE fund
Asia
Divested A premium
medical institution
to
A Southeast Asian PE fund
Asia
Seller advised by
InterChina
A leading Testing, inspection
and Certification MNC
Global
Divested its subsidiary
to
A leading Chinese TIC co’
China
Seller advised by
InterChina
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Investment environment for MNCs
CEO takeaway:
The dust has settled
Determined action for deeper engagement with China
whilst mitigating global and China risks
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China has undergone enormous changes since 2020 and caused
uncertainty and action paralysis for many MNCs….
Political
Economy
Business
Techn.
Social
fabric
Political power
firmly
consolidated
at the top
Weaker
consumer
confidence
(property market,
unemployment)
“Sanction-proof”
supply chain
and selfreliance
China gains
dominance in
decarb. tech
Exodus of
foreigners
and
entrepreneurs
Gov’t increasingly
ideological /
dogmatic
vs fully pragmatic
Meanwhile…
Chinese companies have not stopped.
Complete value chains are being reinvented.
Depleted local
gov’t funds
No inflation,
No energy
supply worries
Acceleration of
industry
consolidation
Renaissance of
local brands
(i.e., NEV)
Private tech
sector broken
up and “in
check”
Digitization
leapfrog,
transparency,
surveillance,
data localization
Source: Left: InterChina analysis. Right: Public literature.
Increased
isolation,
lower mobility
Automotive
• Higher-end segment penetration
• Asset-light strategies of new OEMs
• Competence migration to T1s (i.e.
integration of battery into chassis)
• Overseas investment / global market
China Pork Industry
• Genetics/ breeding
• Slaughter CAPEX to fill demand x2
• Deep processing industrial revamp
• Efficiency at scale, start of consolidation
Semicon
• Alignment of Financing- National
Integrated Circuit Fund.
• Alignment of policy and industry:
Boom of R&D capabilities.
• Acquisition of global foundries and
large CAPEX along the value chain
Petrochem
• 7+ industrial parks
• Value chain revamp: Vertical
integration, latest tech, best logistics
• CAPEX to ensure a move from net
importer to net exporter
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… but the dust is settling: MNC’s accept the new challenges and are
acting - 81% of MNCs remain committed to China.
Trend towards an ideal exposure to China as contribution% of global sales.
Commitment to China is a majority choice
Q. “How committed is your company to China?”
Percentage: No. of respondents.
59%
22%
China remains or has become
a global strategic priority.
China is a lower priority than
previously, but still important.
“Ideal Exposure”: Goal at 20% of global sales
Q. “How much does China contribute to your global sales?”
Percentage: No. of respondents.
">30%"
12%
14%
"20 – 30%"
12%
4%
51%
64%
"11 – 20%"
27%
"5 – 10%"
26%
25%
…varies by BUs
11%
5%
Uncertain
We will exit or significantly reduce exposure to China.*
46%
" < 5%"
23%
11%
3%
Now
Source: InterChina Survey with 271 MNC executives (Oct 2023). *For those who leave: Current China sales are only marginal compared to global revenue.
In 5 years
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Short Term. 2024 better but still challenging year.
Consumer confidence slowly recovering. Most companies expect sales growth (520%). However, margin pressure will be the main challenge.
Economic
indicators
Drivers
Q. “What y-o-y sales growth
are you planning for 2024?”
+
GDP
Growth
4.5-5%
Inflation
~1%
RMB
stability
with
possible
appreciation
Labor
Cost
3~5%
• Consumer upgrade already driving economy;
• Consumer confidence: Acceptance of the new normal of slower
growth will slowly improve confidence;
• Political stability
• Limited stimulus will continue.
• Cont’d consolidation, innovation boom, productivity gains.
• Consumer confidence: the main challenge heavily influenced by
property sector situation
• Exports: unlikely to be a growth driver given geopolitics and slow
global markets
• Property market: On top of various reforms in place, possible
stimulus package for entry level houses. Requires long term vision
and plan however
• Local gov’t debt: Announced RMB 1 trn stimulus will bring some
stability. Medium to long term reform will be required.
• Margin pressure: 1. Excess capacity & deflation 2. For MNC’s:
imported inflation & shift to Chinese customers (more cost driven)
-
Source: LFH and Center: InterChina analysis. RHS: InterChina Survey with 271 MNC executives (Oct 2023).
All respondents
(all sectors)
">30%"
6%
"21 to
30%"
5%
"11 to
20%"
25%
"6 to
10%"
"1 to
5%"
"No
growth"
32%
Mean by
Sector x̄
Consumer goods x̄
Automotive x̄
Healthcare x̄
Large equ. x̄
Industrial parts x̄
Materials x̄
17%
10%
"Minus
5%
growth"
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THE
OPPORTUNITY
Long Term View.
3 Chinas for MNC: Market, Innovation and Globalization
MNCs are in it for the Market &
Innovation
Q. What explains your company’s
commitment to China?
(By order of importance)
Survey
results
“Market size and / or
growth”
“China’s role in global
supply chain”
Local
Execs
1.
2.
Global
CEOs
1.
3.
“Long history and
sunk investment”
3.
4.
“To participate w.
globalizing CN co’s”
4.
5.
“Attractive margins”
5.
4.
“Source of innovation
and technology”
6.
2.
“No comparable
alternative market”
7.
Arguments for the long-term opportunity that China provides to MNCs
Total economic growth of 4 – 5%
p.a. by 2030
Huge middle class,
driven by urbanization
32.4
Added
2023
- 2028
+6.9
60m 270m 470m
27.5
+9.4
2022
China’s Income Class Distribution (Million People)
25.5
1,500
Equal to
twice
Germany’s
GDP
4%
9%
1,000
500
91%
18.1
US
China
0
Source: LHS: InterChina Survey with 271 MNC executives (Oct 2023). RHS: Various (see next slides for details).
31%
54%
2%
17%
29%
67%
69%
1981
1990
Affluent
45%
44%
43%
1999
6%
37%
20%
13%
New Technologies skyrocket by 2030
7.
16%
2010
Delta 2020 –
2030: 200 m
people added to
middle class
2020
Upper Middle
Lower Middle
Low
Poor
2030
ASEAN play – and Global South
2021
Trade flow value:
USD billion
554
394
2031
ASEAN
877 1,277
319
434
1,043
692
611
981
894
1,177
EU-28
By 2030: China will remain
to be the 3rd largest trade
partner of the US and 2nd of
the EU; The China- SEA
Corridor will boom (+USD
400 bn).
China will have deeper
routes with the
Transactional South (Africa
+33%; , GCC +26%;
Mercosur, +55%).
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1. MARKET
China as a market: …will increase the size of its top income
bands by a further ~200m during the course of this decade
China’s Middleclass1
People (Million)
Urbanization: Urbanization still has two decades to run in
China, standing at 65% in 2022 and expected to peak at
82% in 2045. This internal migration will be dominated by
the working age, growing the urban workforce. Smaller
cities, particularly those connected to city clusters, will help
drive consumption.
1,300
4%
2%
17%
1,200
29%
45%
16%
1,100
1,000
6%
9%
31%
900
54%
37%
800
700
67%
600
500
91%
400
69%
300
44%
43%
200
100
0
20%
13%
1981
1990
1999
Source: National Bureau Of Statistics, World Bank’s PIP, InterChina Analysis. 1 InterChina definition of income-bands by per capital disposable income:
Affluent: >RMB 150k/y; Upper-middle: RMB 60k – 150k/y; Lower-middle: RMB 30k-60k/y; Low: RMB 6k-30k/y; Poor: <RMB 6k/y.
2010
2020
Low Poor
Demographic Headwinds: The total population has
peaked at ~1.4 billion and will decline from hereon. With
its low birth rate, China is set to follow Japan towards an
aging society.
60m
Lower Middle
Middle-Class: There are already 270 million people in
China’s upper middle-class1 & above (including 6 million
USD-millionaires). This number will grow to 470 million by
2030.
1,400
470m
Upper Middle
The next
China
is …
China
270m
1,500
Affluent
Economic Development: China has
long-term economic development targets
for 2035 and 2049. To meet these targets,
growth will need to be driven by
consumption. Over time, the government
will likely transfer a higher share of
national income to households to achieve
this. Even at lower GDP growth of 4-5%
China the annual growth increment will be
bigger than any other country in the
world.
2030
Projection
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China as a Source of Technology: China will lead 4 mega trends
2. TECHNOLOGY
& INNOVATION
Scale
Ambition
R&D Personnel, in million people
R&D spend as a percentage of 2022 sales
of listed Chinese groups (all >EUR 1 bn revenue)
China
3.8
2015
80
EU-27
3.9
2.5
(Decarbonization, Smart Industries, Self Sufficiency, Gen Z).
4.0
2.6
2016
2.7
2.8
5.7
5.2
4.8
4.4
2.9
Beigene
3.1
3.0
2018
2019
2020
2021
Patent Cooperation Treaty Applications (in ‘000)
China
60
USA
40
Japan
20
Germany
0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
10
Trademark Applications (in millions)
China
8
6
USA
4
Japan
2
Germany
0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
Industrial Design Applications (in ‘000)
800
China
600
USA
400
200
Japan
Germany
45%
20%
0
2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Kuaishou Techn.
18%
ZTE
16%
Netease
16%
Huawei
16%
Hikvision
10%
Pinduoduo
10%
Hollysys
9%
Tencent
9%
Meituan
9%
Dongfang Electronics
8%
Sany Heavy
7%
Great Wall Motor
7%
Alibaba
7%
CRRC
6%
Didi
5%
Longi Green Energy
5%
BYD
5%
BOE Techn. Group
5%
Shanghai Electric
2023 Global Top 10 of Unicorns
(No. of companies)
119%
Trip.Com Group
Baidu
2017
Funds
Examples
China
316
68
India
49
UK
36
Germany
24
4%
Apple 7%
USA
666
Israel
24
France
23
Canada
18
South Korea
17
Brazil
Alphabet 15%
Sources: OECD, WIPO, European Commission Economics of Industrial Research and Innovation, Hurun Global Unicorn Index 2023
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China based patented technologies and its ecosystems will lead both in
terms of Scale and Speed of growth, becoming massive globally.
2. TECHNOLOGY
& INNOVATION
Global market sizes of “frontier technologies”, 2020 vs 2030, USD bn
4,422
2020
1,582
2030
824
“We estimate China’s IIOT
market will septuple by
2030, driven by policies and
technology innovation”
China CEO, USA Electronics
MNC
740
36
2
5
12
180
175
150
133
89
18%
163
Sources: UNCTAD, Scopus, PatSeer
US
Others
9%
127
102
73
65
33%
35%
32%
Industry
4.0
Green
Others
42
19
Nanotech Gene
3D Biofuels Block
editing Printing
chain
40%
56%
210
71
1
China
252
59
6
27%
621
88
51
49%
641
“What we see in China
based AI Imaging
technology advancements
and its market applications
could lead to X12 growth
this decade”
Global Board Member, SaaS
MNC.
34
“Frontier technology”
patent ownership (2023)
1
12
Green Drones Robotics Conc. Wind
hydrosolar energy
gen
power
6
Big
data
Biogas
and
biomass
5G
Solar Electric
PV vehicles
AI
IOT
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2. TECHNOLOGY
& INNOVATION
China aims to become domestic and global leader in decarbonization
tech areas – MNCs are scouting actively to be part of this
Case in point: China’s Evolving Green Hydrogen Economy
China’s green hydrogen 85
production, m tons
55
H2 vehicle share by 2060:
65% of trucks and buses
15% of passenger cars
Drivers
Key components / tech.
•
•
•
•
Green H2: Alkaline
Electrolysers are a more
mature technology, PEM
and SOEC are quickly
approaching
commercialization.
H2 transport efficiency
has to improve to reduce
logistics costs.
Fuel stations will be built
bigger (i.e. 1000t/day)
and cheaper as the
result of low profitability
at the moment.
20
•
0.05
3
Core components of fuel
cell systems will be
further localized to
reduce cost and increase
fuel cell adoption rate.
•
•
•
•
•
•
•
•
Green H2: Electrolyzer
• PEM (Proton-exchange
• membrane)
• SOEC (Solid oxide Electrolyzer Cell)
• AEM (Anion-exchange membr.)
H2 trading systems
Storage tanks for:
• High pressure gaseous H2
• Liquid H2
• Solid-state H2 (Metal hydride)
Safety monitoring (s/w)
Equipment:
• Compressor
• Storage tank
• H2 dispenser
• Cooling solutions (i.e., PCHE,
Printed-circuit Heat Exchanger)
Digital platform
Fuel cell & components
• Bipolar plate
• Catalyst
• Proton-exchange membrane
• Gas diffusion layer
Compressor
FCEV fleet management
• Many Chinese under-theradar co’s are developing
innovative and competitive
solutions.
• Larger Chinese groups
(e.g. Energy companies)
are starting to acquire and
integrate tech companies
in their overall portfolio.
• MNCs are lacking both the
tech as well as the right
concept for the Chinese
market and are scouting of
possible targets /
partners.
2020 2030E 2040E 2050E 2060E
Sources: LHS: MERICS, China Hydrogen Alliance. Center and RHS: InterChina analysis.
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17
2. TECHNOLOGY
& INNOVATION
China is continuing to invest in new infrastructure to re-power
economic growth
China’s Infrastructure Investment
New Digital Infrastructure
Innovative infrastructure
R&D institutions, research
infrastructure, and innovationfocused industrial parks.
 China needs to do, and will
do, more R&D for building
next generation products.
Information infrastructure
5G, IoT, industrial internet, AI,
cloud computing, blockchain,
data centers, and internet
communication network
infrastructure.
 China will use digital tools to
upgrade industries to drive
higher productivity, speed,
accuracy.
Integrated infrastructure
Inter-city high-speed rail and
inner-city rail systems, charging
stations for electric vehicles
(EVs), and ultra-high voltage
(UHV) power transmission.
 China builds smart cities
Total Expected Investment
(2020–2030, USD 2 Trillion)
AI, data
center
Industrial
IoT
Ultra
-high
voltage
EV
charging
stations
•
Intelligent
transportation.
•
7 defined regional
urban clusters that
accumulate most
economic activities.
•
A more flourishing local
private ecosystem.
•
Higher initial
automation levels of
new Greenfield
factories.
USD 627 bn
Metro /
inter-city
commuter
lines
5G base
stations
Which Will Drive…
Expand the urban rail transit
line by an additional 5,000
km btw. 2021 – 2025.
USD 506 bn
USD 385 bn
USD 297 bn
Build 3 – 5 world-class industrial
internet platforms by 2025 to
help a million enterprises make
digital transformation
•
Continues upgrades of
brownfield factories.
•
Advanced industrial
automation and AIenabled robotics; smart
manufacturing.
•
Higher energy
requirements whilst
prioritization of use of
renewable energies,
green infrastructure.
USD 88 bn
USD 55 bn
Add 12,000 electric vehicle
charging stations in 2020 and
have more than 36,000 by 2025
Sources: China Center for Information Industry Development, Morgan Stanley, InterChina Analysis.
… Resulting In
•
Industrial
metaverse.
•
Shifting
business
models.
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18
2. TECHNOLOGY
& INNOVATION
China’s IIOT market will septuple by 2030, driven by policies and
technology innovation
China Industrial IOT Market
(IOT For Smart Manufacturing, in USD bn)
7x
Intelligent Manufacturing
Development Plan by MIIT (2021)
186.1
IIOT is important to the CCP, ties
into the Made in China 2025 plan
149.6
>70% of manufacturing enterprises
(>RMB 20 m sales) to be digitized
97.0
>200 national and industry
standards, 120 industrial Internet
platforms to be established
78.1
62.8
IIOT is an important tool to support
China’s carbon neutrality (by 2060)
14.2
Digital
Economy
As % Of
Real GDP
2018
17.3
2019
21.4
2020
35%
Source: Grand View Research, Morgan Stanley, CAISC.
Service
(Incl. professional and
managed services)
120.4
SMEs as a driving force; Cultivation
of >150 intelligent manufacturing
system solution providers
Platform
(Incl. connectivity management,
application management
and device management)
Solution
(Incl. remote monitoring,
data management, analytics,
security solutions, and
other suite of solutions)
50.6
26.5
2021
40%
32.8
2022
40.7
2023
2024
2025
45%
2026
2027
2028
2029
2030
55%
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19
2. TECHNOLOGY
& INNOVATION
Self-sufficient technologies: Beijing will continue making progress in
some of its bottleneck technologies
Assumed status of China’s 35 bottleneck technologies (where China struggles with self-reliance) as of 2023
Sources: DiskMFR, &T Daily, J.P.Morgan, Made in China 2025, Center of Security and Emerging Technology (CSET), InterChina analysis.
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3.
GLOBALIZATION
OF CHINESE
GROUPS
Overseas markets more important for Chinese industrial companies,
an opportunity to differentiate for MNCs but also new threat
- both need to be dealt with from within China
Oversea revenue share for listed1 China
industrial2 companies (USD trillion, 3102
companies accumulated)
Role model of China industrial companies’ globalization
Product
example
Electronics
Company
2021 revenue (USD, bn.)
Overseas Domestic
57%
33
21%
19
Construction
equipment
23%
16
Electrics
Medical
device
47%
22%
40%
12
6
4
3.3
19%
Domestic
Lithium
battery
Photovoltaic
~25%
2.0
16%
2017
2021
Overseas
Industry
2025E
Key drivers:
• Domestic market becomes red ocean (overcapacity, price
war, thin margins), while overseas market are more
profitable for Chinese players.
• Domestic market leaders suffer from limited room to grow
market shares, and they are looking for new potential.
• Global markets are looking for cost competitive products.
• Globalizing companies pull entire local value chain players
with them (suppliers, partners, etc.).
1: Industrial companies include manufacturing, auto, electric, chemicals,
mechanicals, medical, industrial software, etc. 2: Listed companies are companies
which are listed in main board, second board and STAR Market in China. Exchange
rate: 1 USD = 6.7 RMB
Source: WIND, InterChina analysis.
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21
THE
CHALLENGE
Risk perception has increased. Geopolitics, domestic policy, competition
Most MNCs gained a better understanding and acceptance of the risks
1. Geopolitics: Regionalization vs Globalization
1. OECD block vs "China+" Block (SEA, OBOR)
2. Both Competition and Cooperation.
3. MNC REACTION: Global De-Risking. Building
Regional Value Chains.
Risk drivers
2.
•
•
•
•
China domestic policy
Support of role of MNC in China
Industrial Policy: Stability/ Predictability
Restricted China: Ideology is here to stay
MNC REACTION: Alignment with domestic
policies; If active in Restricted China, new
alliances.
3. Domestic competition
Main and most direct threat for most MNC
• SOE and Listed Giants: Continuity
• Local Premium Players: New threat.
• Globalization of Chinese: Opportunity & Risk
• MNC REACTION: Deep localization. Acquisition
of Local Premium Players. Alliances
Source: InterChina Analysis.
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Geopolitics. Scenarios are clearer and moving to a Multipolar World
order. Barriers getting tangible (data, standards)
Two distinct global hemispheres of influence, driven by 1. Conflict, barriers and block building and
2. Cooperation in less sensitive areas. An emerging third hemisphere: “The Global/ Transactional South”
+
Political
alignment
Economic
alignment
Data
alignment
Standards
alignment
Source: InterChina Analysis.
<- GLOBAL SOUTH -> <- SE ASIA ->
Firm Block: OECD / G7
Some countries in Global
South
GDP value ~50%
Trade flow: Mostly stable
Many countries will keep
open China strategy
USD / Swift
Data protection
AI capabilities
US’s dominance in int’l
standard development
organizations will be
challenged
+
OBOR, Russia
Some countries in SEA
and Global South
GDP value: 45 – 48%
China- SEA: Massive increase
CIPS / BRICS/ OBOR: 2nd focus
RMB/ Digital RMB
National Balance Sheet asset
Cybersecurity regime
AI capabilities
China Standard 2035
AI, Space, Marine,
Biotech
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23
However, despite tensions and competition, cooperation between
blocks will continue. Decoupling not an option.
“For us, it is In-China-for-China and In-China-for-Southeast Asia. We forecast that trading and investment flows
between these regions will boom and they will do it on their own terms. We need to be part of this new ecosystem”
Global Chairman, German Industrial Group.
Areas of influence are bound by deep economic
Global GDP, in USD tn
Global South
2022
18%
2030
19%
China bloc
22%
60%
25%
56%
US bloc
Trade flows with China remain intact and
new corridors (ASEAN) will emerge
Trade flow value:
USD billion
110
554
Minus GDP growth points
(in a hard separation scenario)
USA
394
877 1,277
-0.8
-0.5
Sources: LHS: USDA ERS. ifo Institute. RHS: UN Comtrade, Oxford Economist, IHS, WTO, BCG Global Trade Model 2022, trademap.org
319
434
1,043
981
692
611
-2.3
China
2031
ASEAN
88
The World cannot afford a
hard separation
Germany
2021
894
1,177
EU-28
Confidential
24
Domestic Policy. Little risk of deviation for the coming 5 years.
Stability & Predictability on key industrial goals.
Ideologic Key Policy Goals
(as confirmed by the Party and National Congress)
1. Security & Self-Sufficiency (Food- Materials/ Tech/ Energy).
2. Stability (focus on internal issues)
3. Back to Growth:
1. High quality development
2. Social equality / ‘Common prosperity’
4. Sci-tech innovation and talent development
5. Environmental sustainability / decarbonization
6. National Security (focus on China borders & SEA Regional).
Industrial. 5 Year planning and published Policy
• Current leadership is fully aligned with Xi and his Key Policy
Goals. This will result in 1. Policy continuity, 2. Efficient
implementation, and 3. Clarity of direction.
• World Bank, Asian Development Bank and Chinese
Academy of Social Sciences: Average execution rate of
the past 3 Five-Year Plans was +90% of investment
targets achieved
Sources: Public data, InterChina interviews
Ideology vs.
Economy?
• Pragmatism is everywhere:
Gray Zones and opportunistic
pendular movements
• A thousand-year social
contract in China, which has
not fundamentally changed
• Economy is key to achieve
“National Rejuvenation”,
including future GDP China vs
USA
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25
Competition: Local premium players are narrowing the gap: Broad
and innovative offerings … and also, global expansion ambitions
Tapping local IPOs to finance investment in growth.
Growth model combining organic + local acquisitions.
Capture control and margin through vertical integration.
Consumer-centric, solution-oriented innovation.
Rapid NPD, low-cost trials, course correction.
Using exports to build scale and competitiveness.
Source: InterChina Analysis.
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In B2B and industrial markets, local premium players are MNC’s
biggest challengers in China. The fight for the “good-enough market”
Chinese Competitors Ante Portas
Auto
Lifestyle
Shipbuilding
Auto parts
White goods
Machinery
Automation
Chemical
Green tech
Electronics
Healthcare
Construction
equip
Food Service
Aeronautics
Electrics
Sources: LHS: InterChina analysis. RHS: disfold.com
Global Top 50 co’s by market cap
as of Jul 1, 2023, USD bn
Apple
Microsoft
Saudi Aramco
Alphabet
Amazon.com
Nvidia
Tesla
Meta Platforms
Berkshire Hathaway
Visa Inc.
TSMC
LVMH
JPMorgan Chase
UnitedHealth
Exxon Mobil
Eli Lilly
Walmart
Johnson & Johnson
Tencent
Mastercard
Broadcom Inc.
Procter & Gamble
Samsung
Novo Nordisk
Home Depot
Oracle
Chevron
Kweichow Moutai
ASML
Merck & Co.
Coca-Cola
PepsiCo
Roche
L’Oréal
Costco
AbbVie
Adobe
Alibaba
Bank of America
AstraZeneca
ICBC
Hermès
Prosus N.V.
salesforce.com
McDonald’s
Cisco Systems
Toyota Motor
Pfizer Inc.
Novartis
Shell
1,521
1,321
1,110
881
775
750
511
480
468
431
429
422
417
416
412
406
382
364
356
355
330
315
313
298
295
279
276
262
253
241
241
240
239
235
232
231
225
220
220
215
215
215
210
208
205
202
201
2,074
China’s Top 50 co’s by market cap
as of Jul 1, 2023, USD bn
2,958
2,537
Tencent
Kweichow Moutai
Alibaba
ICBC
PetroChina
Agricultural Bank of China
China Construction Bank
Bank of China
CATL
Ping An Insurance
China Merchants Bank Co Ltd
China Life Insurance Company Limited
BYD Co Ltd
China Petroleum & Chemical Corporation
Meituan
Pinduoduo Inc.
China Shenhua Energy Company Ltd
China Yangtze Power Co. Ltd
Foxconn Industrial Internet Co. Ltd
NetEase, Inc.
Nongfu Spring Co. Ltd
JD.com, Inc.
Bank of Communications Co. Ltd
Baidu, Inc.
Shenzhen Mindray Bio-Medical Electronics Co. Ltd
Industrial Bank Co. Ltd
Jiangsu Hengrui Medicine Co. Ltd
Zijin Mining Group Co Ltd
CITIC Securities Company Ltd
Wanhua Chemical Group Co. Ltd
Beijing-Shanghai High-Speed Railway Co.,Ltd.
Li Auto Inc.
Xiaomi Corp
China CITIC Bank Corp Ltd
Foshan Haitian Flavouring and Food Company Ltd
Shanxi Xinghuacun Fen Wine Factory Co.,Ltd.
China Tourism Group Duty Free Corp Ltd
China Pacific Insurance
The People’s Insurance Company (Group) of China Ltd
East Money Information Co.,Ltd.
LONGi Green Energy Technology Co. Ltd
Yihai Kerry Arawana Holdings Co. Ltd
Shanghai Pudong Development Bank Co. Ltd
Haier Smart Home Co Ltd
Kuaishou Technology
ANTA Sports Products Ltd
Semiconductor Manufacturing International Corp
Beijing Kingsoft Office Software, Inc.
NARI Technology Co. Ltd
WuXi AppTec Co. Ltd
295
232
220
185
166
144
144
139
117
112
110
104
99
97
96
75
74
66
63
61
56
51
50
49
44
42
42
39
39
38
36
35
35
35
34
33
33
32
31
31
30
29
29
29
29
28
27
26
26
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27
For B2C, the “Guochao” (local brands) has especially evolved in
China’s landscape
Brands that impress Chinese Gen Z are brands of choice over foreign / import brands and products
Apparel & Accessories
Cosmetics & Fragrance
Food & Beverage
Consumer Electronics
E-commerce
Audio & Video APP
Games & Entertainment
Travel
Car
Source: InterChina Analysis.
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MNC reaction to
2024 investment environment
CEO Takeaway:
Time for action & determination : ‘Engage & De-risk’
TIME FOR A NEW CHINA PLAYBOOK
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Majority of MNCs expect to lose their competitive advantage
in the next 5 years…need for a new China Playbook
Q. “By when do you expect to have lost your ‘origin
advantage’ as an international company in China?”
Acc. to global CEOs
of MNCs in China
Acc. to local executives of
MNCs in China
85%
70%
86%
79% 7%
15%
72% 7%
63% 7%
22%
19%
50%
30%
Source: InterChina Survey with 271 MNC executives (Oct 2023).
"Beyond 8 years"
"Within 8 years"
"Within 5 years"
21%
"Within 3 years"
"Never"
"Beyond 8 years"
"Within 8 years"
"Within 5 years"
15%
"Within 3 years"
"Already lost"
15%
69%
They sacrifice margin
to gain market share.
67%
They expand to benefit
from economies of scale.
41%
They offer flexibility in payment
terms and contract conditions.
41%
37%
They benefit from
preferential policies and financing.
29%
14%
They expand into global markets.
28%
"Never"
21%
15%
They respond quickly to local needs
and launch new solutions/products.
They leverage their origin with
customers prone to “buying local”.
29%
"Already lost"
44%
Q. “What are Chinese competitors
doing to keep you awake at night?”
They integrate vertically
to exert greater control.
They become more
attractive employers than MNCs.
21%
15%
(several mentions possible)
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New China
Playbook Determining
Factors
Int’l companies are in one of three situations, with different
paths forward. Many MNCs are rethinking where they are.
Situation Assessment
Survey
results
China Has A High
Strategic Importance
Determined
Companies with a
strong commitment to
China and belief in their
potential:
Equivocal
Companies with a
mixed performance
across the business in
China:
Company Has
A Low
Ability To Win
Unviable
Companies unwilling or
unable to make the
investment required to
remain competitive:
 Focus on
“Engagement &
Risk Management”.
Company Has
A High
Ability To Win
 Strategic review and
presumed restructuring.
 Consider full/partial
exit from China.
China Has A Low
Strategic Importance
Source: InterChina Model.
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New China
Playbook Determining
Factors
The “70/30 China”: In which China am I playing? Domestic risk is low
for actors in Open China.
In what “China” are you? China’s strategic map is shifting…
Dynamics
• Slower growth markets
• Compliance (sales, tax, green)
• Sector consolidation / M&A
• Emerging local premium players
Data mgm’t and data flows
E.g. Smart mobility, Possibly: IIoT,
e-commerce, Healthcare / hospitals
Open China: 70% of sectors
Opening forces
E.g.
• Automotive
• Consumer goods, retail
• Machinery
• Manufacturing (mostly)
• Life sciences
20% “Shifting
China”
MNC playfield,
competing with large
and small private local
co’s, and SOEs.
•
•
•
•
•
Dynamics
• Customers, competitors
are SOEs
• Strong impact on public
tenders
Public comm. and information services
Science, techn., industry for nat. defense
Water conservation
Transportation
Energy
Restrictive forces
Source: InterChina Model.
State-linked
customers’ purchasing
decisions across all
sectors
E.g. Rx pharma, medical
consumables
Restricted China:
30% of sectors1
1Aug
’21: Critical Information infrastructure (State Council/ Xinchuang” committee (MIIT, CAC))
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New China
Playbook Determining
Factors
The “80-20% China”: Traditional China (consolidation, M&A) vs New
China (Growth, Alliances)
Drivers/Sectors
The Two Sides Of China
Contribution
To Economic
Growth
“New China”
Many MNCs are
Currently operating
at this fault line
20%
•
•
•
•
•
•
•
•
•
Self-sufficiency.
Sustainability.
New infrastructure.
Digital.
Smart services.
Smart mobility.
Energy storage.
Wellness.
Gen Z.
• Machines, components.
• Materials, commodities.
“Traditional China”
• Construction materials.
80%
• Pharma/medical supplies.
• Consumer goods.
• Food & beverage.
Characterization & Imperatives
• Emerging.
• Growth.
• Rapid change.
• Innovation.
• Adjacent
moves.
• New business
models.
• Ecosystems
• Partnerships
and alliances.
• Mature.
• Scale.
• Plateauing.
• M&A.
• Slow moving.
• R&D.
• Consolidation.
• Services.
• Margin erosion.
• Efficiency.
Time
Source: InterChina Model.
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New China
Playbook Determining
Factors
2019
Customer risk perception: Foreign suppliers’ risk profile has increased
in the eyes of domestic clients. “Below the Radar MNC” will benefit.
Previous supplier preference
– example production equ.:
Performance
2023
Supplier preference now
- generic example:
Supply risk
Chinese
Supplier pyramid
Source: InterChina analysis.
Supplier wedge
High
Low
Korean / Taiwanese
High
Korean
Japanese
Japanese / US
US
European
Other
European
Chinese
Chinese buyer
Swiss
German
Taiwanese
Customer perception: Willingness
to pay premium / perceived
performance, quality, etc.
Chinese buyer
Low
Customer perception: Level of supply
risk, sanction risks, availability risk of
after-sales parts, etc.
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New China
Playbook
The New China Playbook: Engage – Localize – De-risk
Engage
Deep Localization
De-risk
To compete effectively
in China given the stronger
local competition.
To establish a full in-market operation that (a)
strengthens competitiveness (b) would provide
continuity (or options) in the face of an external shock.
To reduce global exposure
should there be a
China related shock.
• SCALE X RELEVANCE
• TRANSFORMATIONAL GROWTH
• CONSOLIDATION - M&A
• NEW ECOSYSTEMS
Source: InterChina analysis.
• SECOND WAVE OF LOCALIZATION:
INNOVATION, SPEED, GOVERNANCE.
• REGIONALIZATION- SECURE
LOCAL SUPPLY CHAINS
• MOVING FROM A “MNC WITH LOCAL
PRESENCE” INTO A “CHINESE COMPANY
WITH MULTINATIONAL CHARACTERISTICS”
• CHINA BUSINESS RISK TO BE
FINANCED WITH CHINA
BALANCE SHEET
• ALLIANCES FOR
SUSTAINABILITY
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MNC Best Practices 2024
CEO takeaway:
The lessons and practices learned
with great efforts and cost over the last 15-20 years
are no longer a guarantee for success in the future.
A new China Playbook is emerging.
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36
Common denominator of best practices: Thorough transition towards
Chinese customer needs…and an adapted MNC skill set.
Customers’ pain points
Best practices of MNCs engaging with Chinese customers
Quick response
• To increase commercial decision power of local BU leaders and shift more
product development authorization to China to realize quicker response.
Cost reduction
• Build deeply localized supply chains (100% local) and network of
industrial partners to increase speed and reduce costs.
Technology upgrade
• Early engage in customer development processes, providing
exclusive products based on pre-sales technical supports
Overseas expansion
• Expand overseas plants’ production capacity to support
customers’ expansion plans in global markets.
Source: InterChina analysis, based on qualitative interviews with +200 global and local CEOs of MNC
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Breakdown of best practices by multinational investors
Engage
Deep Localization
De-risk
To compete effectively
in China given the stronger
local competition.
To establish a full in-market operation that (a)
strengthens competitiveness (b) would provide
continuity (or options) in the face of an external shock.
To reduce global exposure
should there be a
China related shock.
Reach size, scale
Autonomous China leadership
New WTM strategies
Chinese customer base
M&A as growth driver
Flexible contribution margin
Transformational strategies
Local B-brands
HQ-China alignment
Supply chain localization
Tap innovation ecosystems
In-market R&D and NPD
Assist CN co’s to globalize
Standalone data management
Source: InterChina analysis, based on qualitative interviews with +200 global and local CEOs of MNC
Diversify global
supply base
Restructure
portfolio / divest
Financial
management
Chinese
strategic partners
Local stock
market listing
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Engage
Best Practices & Trends
Confidential
39
Engage
Scale, size, and growth: Half of MNCs aim to double or more
their size in China to achieve “relevance”.
Q. “To be competitive in next 5 years, how fast do you need to grow?”
Percentage: No. of respondents
2x
3x
5x
10%
42%
1x
46%
Track market growth
to retain market share.
Outpace market
growth, and 2x in size.
Sources: InterChina Survey with 271 MNC executives (Oct 2023), InterChina research and analysis
Outpace market
growth, and 3x in size.
Outpace market growth,
and 5x or more.
Confidential
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The emergence of transformational growth: Driven by aggressive
regional expansion, adjacent growth and digital transformation
Engage
MNCs keep expanding in China
and pursue ambitious goals
Some MNCs explore new WTM
strategies in changing markets
China leading the way
for digital transformation
Lumada: digital solution launched by Hitachi
(no. of outlets)
(no. of outlets)
20,000
10,000
13,000
5,400
(no. of outlets)
96
MRO business for metro
stations: The German
fasteners and utilities
wholesaler Würth partnered
with JD.com to accelerate
speed of services and using
JD.com as the interface.
48
Property-sector-related
suppliers increasingly
focus on building
renovation instead of
new installations:
Dedicated team and
dealers; Financial
support to these dealers.
Lumada global revenue growth (USD bn)
2023
2026
2023
2028
2023
2029
(no. of outlets)
(no. of outlets)
(no. of vehicles)
2,750
9,000
8,000,000
6,800
700
2023
885,000
2026
2023
2025
Source: Public reports, InterChina analysis.
2023
2030
Eaton changed service and
installations towards a
franchising model, where
dealers invest into a license
that helps them to improve
profitability. Furthermore,
Eaton now tracks dealers’
sell-out (instead of sell-in)
via WeChat QR codes.
+24%
Boao scheme for innovative
pharma and medtech
products allows to avoid a
lengthy market registration
and approval process when
sold in Hainan hospitals.
9
% of Hitachi
group
2021
14%
13
15
2022
2023E
18%
18
2024E
Lumada use cases in China
The medical device maker
Stryker is optimizing the
local sales team’s
performance by providing
bundles of adjacent med
device categories (e.g. local
endoscope cameras).
Danaher acquired local
diagnostics players for
obtaining new products that
provide synergies to the
existing portfolio and target
customers.
Industrial robot current
abnormality detection
IoT management
platform of logistic trucks
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For >70%, M&A will be a key tool.
Motivated to acquire Scale and Deep
Localization. Driven by lower valuations (x8EBITDA) and Speed (average 6-month
process)
Engage
How important will inorganic
growth be for your firm
in the coming years?
Percentage: No. of respondents
13%
20%
27%
Sector Structure:
How do you expect
your sector structure
to evolve over the
next 3 years?
Importance Of
Scale: Do you
consider scale in
China to be a KSF
for your company?
Equally important
to organic growth
Will become
more
consolidated
3 year index of Shanghai and Shenzhen Stock Markets
29%
Yes, scale is
key to being
competitive
in China
55%
Scale is
important,
among
other factors
60%
Supplemental to
organic growth
Unlikely or
not relevant
A good time to invest: Valuations are subdued
due to local stock markets’ low performance
Percentage: No. of respondents
The fundamental
growth driver
73%
39%
Sector consolidation
Will remain
stable
17%
Will become
more
fragmented
6%
Difficult
to judge
16%
14%
2%
Scale is ‘good
to have’, but
not a key factor
No, scale is
not important
Source: LHS: InterChina Survey with 271 MNC executives (Oct 2023). Center: InterChina Survey May 2023. RHS: Trading Economics
Confidential
42
Engage
Chinese Strategic Partners, Joint Ventures, and alliances.
43% MNCs are re-launching their alliance strategy in China (new partners in,
old partners out)
Q. “Are you planning new
equity partnerships in China?”
Yes - with financial partners
Yes - with strategic partners
2%
41%
Q. “If you are considering M&A / JV in China,
what are your main motives?”
Expand market share
(buying direct competitors)
43%
More localized offering
(B-brand, product, services, techn.)
40%
Strengthen market access
for existing business
38%
Strengthen in-market
R&D capabiltiies
29%
Diversification, adding a new
business platform for growth
Complete in-country
manufacturing footprint
No.
56%
Be perceived as "local" by
customers and / or gov’t authorities
Forward integration
(value-added, channels, services).
Backwards integration
(to secure a local supply chain)
24%
19%
18%
17%
15%
Several mentions possible
Source: InterChina Survey with 271 MNC executives (Oct 2023).
Confidential
43
Tapping local (innovation) ecosystems... Sensitive areas critical for
Engage
China and fundamental to develop integrated solutions. MNC can grow via
alliances and minority investments
Scale
Ambition
R&D Personnel, in million people
China
EU-27
4.4 4.8
3.8 3.9 4.0
2.5 2.6 2.7
2.8
5.7
5.2
2.9
3.0
3.1
R&D spend as a
percentage of 2022
sales of listed Chinese
groups (all >EUR 1 bn
revenue)
Funds
Engagement
No. of Unicorn
companies per
country (top 10,
2023)
AUM
(EUR
m)
2015 2016 2017 2018 2019 2020 2021
80
Patent Cooperation Treaty
Applications (in ‘000)China
60
USA
40
Japan
20
Germany
0
2012 2014 2016 2018 2020 2022
10
8
6
4
2
Trademark Applications
(in millions)
China
USA
Japan
Germany
0
2012 2014 2016 2018 2020 2022
800
600
400
200
Industrial Design
Applications (in ‘000)
China
USA
Japan
Germany
0
2012 2014 2016 2018 2020 2022
Beigene
Trip.Com
Baidu
Kuaishou
ZTE
Netease
Huawei
Hikvision
Pinduoduo
Hollysys
Tencent
Meituan
Dongfang
Electronics
Sany Heavy
GWM
Alibaba
CRRC
Didi
Longi
BYD
BOE
Shanghai
Electric
119%
45%
20%
18%
16%
16%
16%
10%
10%
9%
9%
9%
8%
7%
7%
7%
6%
5%
5%
5%
5%
4%
Est.
666
USA
China
316
India
68
UK
49
Germany
36
Israel
24
France
24
Canada
23
South
Korea
18
Brazil
17
Fund
positio
n
Fund
source
Invest
areas
and
succes
scases
Future
Case in point: Bosch
Bosch VC
Boyuan Capital
2008 entered China
2021
250 (Phase IV)
~130 (Phase I)
LP
GP, CVC (For global investment)
Local for local investment platform
(local independent decision-making
process )
Bosch
Bosch VC
Local Chinese LP, e.g. Weifu Hightechnology Group, Shengshi
Group
Before entering direct investment
area, Bosch VC played a LP role
for GSR VC and Gobi Venture.
After entering direct investment
area, it mainly focus on AI, IoT,
Semiconductor, Quantum
computing.
Sustainable transportation, smart
manufacturing and IoT, AI,
semiconductors and carbon
neutrality.
Cases: Megarobo, Allystar, Trunk,
UISEE, Ziyun, AutoAI
•
•
Will included Blockchain as invested area.
Will explore more projects on eastern US.
Sources: OECD, WIPO, European Commission Economics of Industrial Research and Innovation, Hurun Global Unicorn Index 2023, InterChina analysis.
Confidential
44
Survey
results
Following Chinese co’s in their globalization process.
Reacting and taking advantage of Chinese overseas investment
Q. “Do you see an opportunity to
partner with Chinese companies
in their own outbound expansion?”
Automotive:
Overseas capacity expansion
of CN OEMs and T1s
Overseas sales of
listed Chinese
industrial groups
USD 2.0 tn USD 3.3 tn
20%
8%
Outbound expansion
is happening, but we
haven’t considered
a partnership
Outbound expansion
is happening, but there
is no partnership potential
Companies &
main products
Chang’an
Chinese Tier 1 Suppliers
42%
●●●●
●
●
●
SAIC
●●●
Geely
●
●●
●●
●●
●
●
●
●
●
●
●●
●
●
●
19%
●
●
●
●
●
●
●
~25%
●●
●
Chinese groups’ overseas
operations are Microsoft
China’s largest business
stream, serving them in SE
Asia, LATAM, and Africa.
●
FAW
●
BAIC
●
●
●
NIO
HASCO2)
(Int,exterior)
Minth (Int,
exterior)
Fuyao
(Automotive
glass)
BHAP
(Int,exterior)
Gotion (BEV
batt.)
CATL (BEV
battery)
Joyson
(Electronics)
Webasto expanded its
glass factory to Chinese
OEMs’ global expansion
plans, and helps them
with a dedicated dev’t
office in China re. radar
systems and sunroof s/w.
16%
●
●
JAC
BYD
●
●
●
GAC
Hozon (NETA)
No such outbound
expansion expected
(in our sector)
in the coming 2 - 3 years
●
Chery
Great Wall
Motors
N/A
Africa
Americas
Thailand
Indonesia
India
Malaysia
Viet Nam
Pakistan
Iran
Kazakhstan
Myanmar
Germany
Russia
Czech
Slovakia
Hungary
Serbia
Ukraine
U.K.
Bulgaria
Belarus
Mexico
USA
Brazil
Uruguay
Equator
Paraguay
Argentina
South Africa
Egypt
Nigeria
Yes - we’re actively
looking for this
type of partnership
Main locations
of
overseas
plants1)
Europe
●
●●●
●●
●
●
●●●
●
●
●
●●●
●
●
●●
●●
●
●●
●
●
●●
●
●
●
●
●●
●
Linglong (Tyre) ●
Fawer (Chassis)
●
●
●
●
●
Red dots: Plants announced since 2021 (Incl. M&A of other plants)
Note 1): Incl. Knock-down (KD), Semi-KD and Complete-KD plants. 2) incl. Yanfeng
Source: InterChina, Marklines, Gasgoo Auto, Wind, InterChina survey Oct 2023.
Domestic
49%
17%
Yes - we’ve been
doing this for
some time
Chinese Passenger Vehicle OEMs
12%
Asia
MNCs are finding
ways to capitalize
on this trend
Overseas
Engage
2017
2021
2025E
AZ helps Chinese
pharma players to set
up manufacturing
operations overseas
with the intend to
market their drugs with
AZ’s sales teams.
Confidential
45
Engage
Engage: Need to revamp the Alignment between HQ-China
New tools are being developed to manage the growing Gap
Q. “Which mechanisms do you have in place
to build alignment between HQ and China?”
An effective tool: China advisory board
(several mentions possible)
Frequent int’l
exchange (visits,
joint programs)
73%
Restructuring of
the organization
and reporting lines
Global board
members with
China experience
China advisory board
comprised of internal
and external members
25%
20%
15%
Rotation of executives
btw. China and HQ
(secondments)
12%
Increase number of
senior expatriates in
China to facilitate HQ
communication
11%
Sources: InterChina Survey with 271 MNC executives (Oct 2023).
Confidential
46
Deep Localization
Best Practices & Trends
Confidential
47
Localize
“Localization” as a key initiative against local competition…
and that means to locally innovate
Q. “Why is your company
localizing in China?”
Q. “Which localization initiatives have you
undertaken or are you planning?”
Increasing innovation in China for China.
To strengthen
competitiveness.
75%
60%
Localizing supply chains and reducing imports.
56%
Increasing share of sales to Chinese customers (not MNCs).
40%
Accepting lower margins in China than the global norm.
To improve market access
by being recognized
as a local company.
56%
36%
Granting China leadership a high level of authority.
40%
Registering more IP locally.
To create independence from
global operations (for
global risk management).
34%
22%
Running a B-brand specifically for China.
17%
Standalone data management in China.
17%
Increasing share of RMB financing in capital mix.
Not relevant
14%
New equity partnerships in China.
9%
Survey
results
Sources: InterChina Survey with 271 MNC executives (Oct 2023).
Local stock market listing.
12%
3%
(several mentions possible)
Confidential
48
Several MNCs are already at the forefront of localization,
mostly via local innovation…
Localize
Examples of MNC “mega localizers”
Shanghai Mitsubishi- A Top 3 Elevator Maker in China
Local due to SOE owner
2 SOE: 60%
Mitsubishi: 40%
800V
EUR 7.7
bn sales
in China
in 2022
Separate team for Chinese
customer innovation
Nidec established a separate “B-team” to serve local
Chinese OEMs, starting with GAC and Geely, and will
extend this proposition to other C-OEMs. The separate COEM team, counting 100 people in China, has different JDs,
incentive structures and overall culture than the teams
engaging with international OEMs in China.
Source: InterChina Research.
50 factories
4 R&D centers
240 after-sales outlets
20,000 employees
Directive: From
“Developed in
China” to “Led
by China”
Listed in
NYSE and
HKEX
Mkt cap
$23.7 bn
•
•
•
•
China sales grew from USD 0.4 bn in 2004 to USD 6 bn
Sub-brand Huosheng for China market (HQ in Wuhan)
Keep close relationship with government and publicly
support China strategic initiatives like BRI (help Chinese
companies go overseas) and C919
Follow “East to East” and “East to Rest” strategies and
China team leads in many product development.
KFC
Pizza Hut
Taco Bell
Lavazza
COFFii & JOY
Little Sheep
Huang Ji Huang
East Dawning
V-Gold Mall
Local channel maximization
•
•
•
Local portfolio, local sourcing
China “8080” Strategy:
• 80% of products sold in China to be produced locally.
• 80% of China plants’ input to be sourced locally.
• Acquisition of local company Suzhou Xitogen to tap
products for local and export market.
• R&D center in Shanghai with focus on China market.
•
•
•
•
•
•
•
•
•
Nippon Paint- No.1 in coating in China
Being perceived as local
Local R&D and digital
marketing for fast WTM
All of KC’s China innovation come from China. Huggies, with its
light and thin technology in four different series are also sold in
Australia and NZ. Nearly all of its media spend is online – KC
heavily invests in digital media (e-commerce, social media, live
streaming, short videos, and vertical apps). 70% of its baby
diapers and 30% of its feminine care products now sold online.
Local portfolio and innovative NPD
Local innovation lead the RoW
Local channel: 24,380+ stores (2x of 3trees, which has the 2nd
most stores), 3,000+ mono-brand stores, 3,000+ distributors
for offline channel.
Recruited channel specialist team from a FMCG player
(MasterKong) to build offline channels since 2008.
Strong support to channels: 1) Developed different products
for different channels; 2) use online channels to drive traffic
for stores;3) marketing support etc.
(
•
•
•
)
Local via M&A
First foreign IVD co’ to acquire local player (Suzhou
SYM-BIO and Shanghai Haoyuan in 2009 and 2012).
Expanded the production of the acquired companies
and strengthen products specific for China market such
as HBV test kits.
Utilized Synergy in distribution channel.
Confidential
49
Deep Localization: “What does it mean to be Chinese for me?”
Localize
Tech
Selling global business entity to local investor
Selling China entity to local investor
3rd
party
cloud
Partnerships w.
local tech co’s
Finance
Selling minority to Chinese PE
JV w. local player (foreign
party owning minority)
R&D
Acquisition
of local
player
People
JV w. local player
(foreign party
owning majority)
SCM
30% China. Foreign co’s being “Politically Chinese”
Goal: Market access
Keep qualifying as vendor in politically sensitive customer sectors;
Preventing national or local gov’t to disqualify foreign vendors.
Independent
local mgm’t
team
Joint product
development with
local customers
In-country
assembly
plant
Flexible
payment terms
(credits, AR)
China
Advisory
Board
R&D, NPD
‘In China
For China’
Pre-sales
application
engineering
China
Holding
Co’
Local bonds
Convertible
loans
Abolishing English
requirement for
local managers /
sales staff
Shift global product
manager to China
Upstream
supply chain
fully localized
IPO in local
stock markets
Add Chinese
directors to
BoD
Shift HQ
to China
China org owns
global product
In-country
production
plant
Goal:
Be more
competitive
• Speed
• Localized
decisionmaking
authority
• Products and
solutions
suiting local
market
needs
• More local
autonomy
org.
70% China. Foreign companies being “Commercially and operationally Chinese”
Source: InterChina Research.
Confidential
50
Customer mix: MNC’s China operations will reduce dependence on
MNC accounts and increase the share of local customers
Localize
Q. “Do you intend to increase the
share of Chinese customers (excl.
MNCs operating in China)?”
Case in point: Share of Chinese OEMs in the customer mix of int’l automotive
component makers in China (as surveyed by InterChina in Q1 and Q2 2023)
%: Share of Chinese OEMs in supplier’s customer mix
100%
Chinese OEMs will account
for majority of business of
int’l component makers
95%
25%
Chinese customer share
needs to increase significantly.
90%
Balance btw. Global and
Chinese OEM customers for
int’l component makers
Global OEM customers
remain more relevant for
int’l component makers
85%
80%
75%
70%
25%
Chinese customer share
needs to somewhat increase.
87%
65%
60%
55%
50%
45%
2025 average
44%
2022 average
35%
40%
37%
Chinese customers have
already a high share currently.
35%
30%
25%
20%
Source: InterChina Survey with 271 MNC executives (Oct 2023); InterChina research.
Co 25
Co 24
Co 23
Co 22
Co 21
Co 20
Co 19
Co 18
Co 17
Co 16
Co 15
Co 14
Co 13
Co 12
Co 11
Co 10
Co 9
Co 8
Co 7
Co 6
0%
Co 5
2030 Incremental Target
5%
Co 4
Not relevant.
2025 Incremental Target
10%
Co 3
10%
2022 Actual
15%
Co 2
We’re content with a
low share of Chinese customers.
Co 1
4%
Confidential
51
Sources: Left: InterChina Survey with 271 MNC executives (Oct 2023). Right: WIND, Shanghai SE, Shenzhen SE, InterChina research.
Confidential
Benchmark: EBIT Margin (in %) of selected Chinese groups, H1 2023
Sinovac
Muyuan Foods
Country Garden
Xpeng
Materials
4.4%
iFlytek
JD Logistics
BOE Techn. Group
Didi
FAW Jiefang
Dongfeng Motor
Rongshen Petrochem
Industrials
4.6%
Changhong
Alibaba
Sinomach
TCL
Lenovo
Great Wall Motor
Geely
No.
5.7%
IT
5.4%
Guangzhou Autom.
JD Health
SUMEC
18 18 18 18
17 17 17
16 15
15 15
discretionary
CIMC
Baoshan
Shanghai Electric
21
Consumer
Weichai
BYD
SAIC
Sunny Optical
24
Han’s Laser
CR Pharmac.
CRRC
26 25 25
Energy
7.7%
Sinotruck
Mengniu
Meituan
27
8.3%
PetroChina
Truking
TTI
Xiaomi
46
Consumer
staples
ZTE
Jinko Solar
Haier
30
25
China Telecom
Huaneng Power
Sany Heavy
30
27
Health
care
9.3%
Midea
Zoomlion
AviChina
30
Telecom
10.4%
CATL
Goldwind
CHINT
Yili
129
Zhuzhou CRRC Times
Fosun
Wanhua Chemical
39
Supcon
Zhejiang Dahua
Gree
42
Utilities
12.3%
Hollysys
Huawei
Hikvision
Longi
Finance
28.4%
Baidu
China Mobile
CR Microelectr.
35%
51
Anta Sports
Fuyao Glass
Li Ning
29%
Our China leadership
believes this is
necessary but HQ is
not yet aligned.
56
Lepu Medical
Hansoh Pharma
Tencent
Pinduoduo
65%
36%
Yes - we have
an agreement
with HQ that
this is necessary.
Diversified Capital Markets
Special Financial Services
Asset Management & Custody Banks
Regional Banks
White Spirit & Wine
Diversified Banks
Investment Banking & Brokerage
Highway & Railway
New Energy Power Generation
Harbors & Services
Life Science Tools & Services
Multi-Sector Holdings
Semiconductor Equipment
Leisure Facilities
Healthcare Equipment
Independent Power Producers & Energy Traders
Healthcare Technology
Real Estate Operating Companies
Biotechnology
Shipping
Railway Transportation
Soft Drinks
Home Entertainment Software
Managed Healthcare
Beer
Healthcare Facilities
Industrial Gases
Publishing
Traditional Chinese Medicine
Healthcare Supplies
Personal Items
Non-traditional Telecom Operators
Real Estate Services
Composite Utilities
Diversified Insurance
Electricity
Integrated Telecommunications Services
Hotels, Resorts & Cruise Lines
Electronic Equipment & Instruments
Houseware & Special Consumables
Office Electronic Equipment
Western Medicine
Footwear
Household Appliances
Motorcycle Manufacturing
Agricultural Machinery
Home Decorations
Semiconductor Products
Electrical Components & Equipment
Tire & Rubber
Industrial Machinery
Airport Services
Fertilizers & Agricultural Chemicals
Commercial Printing
Investigation & Consulting
Environmental & Facility Services
Clothing, Accessories & Luxury Goods
Computer Storage & Peripheral Equipment
Healthcare Services
Gold
Gas
Aluminum
Special Chemicals
Movies & Entertainment
Advertisement
Restaurants
Aerospace, Aeronautical & National Defense
Communications Equipment
Paper Packaging
Basic Chemicals
Building Materials
Household Goods
Food Distributors
Motor Vehicle Parts & Equipment
Office Service & Supplies
Franchised Stores
Drug Retail
Metal & Glass Containers
Textiles
Metal & Non-metal
Security & Alert Services
Department Stores
Construction Products
Heavy Electrical Equipment
System Software
Construction Machinery and Heavy Trucks
Leisure Goods
Forest Products
Highway Transportation
Educational Services
Electronics Manufacturing Services
Auto Manufacturing
Data Processing & Outsourcing Services
Electronic Components
Human Resource & Employment
Real Estate Development
Life & Health Insurance
Consumer Electronics
Computer Hardwares
Food Processing & Meat
Internet Retail
Construction & Engineering
Precious Metals & Ores
Air Freight & Logistics
Healthcare Product Distributors
Food Retail
Internet Software & Services
Chemical Fiber
Paper Products
IT Consulting & Other Services
Trade Companies & Industrial Products Distributors
Consumer Goods Distributors
Aviation
Steel
Cable & Satellite TV
Technical Product Distributors
Auto Retail
Comprehensive Support Services
Application Software
Photographic Supplies
Silver
Diversified Processing
Agricultural Products
Special Consumer Services
Catalog Retail
Other Diversified Financial Services
Computer & Electronics Retail
Home Deco Retail
Q. “Are you willing to accept
lower margins in China than
the global norm?”
Mindray
Netease
Wuxi Biologics
CNOOC
CGN Power
Localize
it, and forces MNCs into benchmarking with local peers or your customers EBIT.
Accept lower prices/ gross margins: The 65% of MNC are ready to
accept lower margins. Higher local customer share brings more competition with
Benchmark: Avg. sector net profits (in %) of groups listed in Shenzhen and Shanghai
Real
estate
3.7%
38
24 23 22 22
23 22
21 20 18 18
19 18
17 17 15
15 14 13 12 12
12
12 12 12 12 11 10 10 10
10 10 10 10
9 9 9 9 9 9 9 9 8
8 8 8 8 7 7 7
-7
-5
7 7 6 6 6 6 6 6 6 6 6
6 6 6 6 6 6 5 5 5 5 5 5 5 5 5 5
-5 -5
4 4 4 4 4 4 4 3 3 3 3
-1 -3
3 3 3 3 3 2 2 2 2 2
2 2 2 2 2 1 1 1 1
1 1 0 0 -1 -1
-62
-66
40 40
35
-20
13 13 13 12 12
12 11 11
10 10 10 10 10 10
9 9 9 8
8 8 7
7 7 6 6 6
6 5
-5
4 4 4 4 4 3 3
3 3 2
-2
2 2 2 1 1
1 0 0 -1 -1 -1
52
Industrial transformation and Supply chains localization: 100% sourced from
real Chinese suppliers. Both to balanced lower prices and still have acceptable net
Localize
profit.
Q. “Do you intend to increase the share of
locally-sourced inputs (reducing imported
inputs) in your China COGS?”
10%
Case in point: Automotive T1s will source more from real Chinese
suppliers - good for the MNC itself, but less ideal for its MNC suppliers
Imported
Share needs to increase significantly
Local sourced from MNCs
Sourcing localization of selected T1s China Operations
10%
30%
Share needs to increase
14%
15%
9%
20%
4%
20%
20%
20%
13%
20%
35%
8%
83%
16%
16%
Sourced from CN suppliers
30%
30%
26%
13%
21%
40%
35%
43%
Already a high share
77%
4%
We’re content not being a high share
13%
Not relevant
Co 1
Source: InterChina Survey with 271 MNC executives (Oct 2023); InterChina research.
77%
Co 2
76%
Co 3
72%
Co 4
64%
Co 5
64%
Co 6
35%
61%
Co 7
52%
Co 8
49%
Co 9
40%
Co 10
33%
35%
33%
Co 11
Co 12
Confidential
53
“B-brands”: A renaissance as MNCs need to create alternatives to
their own offering…
Localize
Q. “Have you added a B-brand to
access the ‘good enough’ market in
China (organically or acquired)?”
26%
Not yet, but we will
consider this more
seriously in 2024.
18%
Yes – the results
were satisfactory.
8%
Yes, but the results
were underwhelming.
48%
No - we will never
consider this
Sources: Left: InterChina Survey with 271 MNC executives (Oct 2023), Right: InterChina research.
Examples of MNC B-brands in China
Confidential
54
Technology, IP: How much to move to China? How to keep profitability?
“A key debate that redefines competitiveness for next 15-year cycle”
Localize
Global platformlocal adjustment
Keep the
cookies
in the jar
Majority of innovation outside of China
• Keep basic science and innovation global.
• China-for-China R&D Centers that focus on
localization of global technologies.
• The global platform patents remain global.
Utilize int’l market
prototypes;
accelerate B/C-sample
process for Chinese
customers projects
Limited
or only slight
localization
Local “Blackbox”
Global Tech Platform
Global “Blackbox”
Product development localization grid
New
prototypes
Local
x local IP
Medium localization
Deep localization
Local Tech Platform
Source: InterChina analysis, Source: InterChina CEO Survey April 2023
China-for-China/ China-for-Global innovation
• Heavily invest in local innovation and R&D.
• Create innovative ecosystems:
• Patents developed in China registered in China.
Indigenous
development
Confidential
55
85% already have or are planning local In-Market R&D as a key
priority
Localize
Q. “Do you intend to increase the share of locallydeveloped solutions in your China sales?”
Examples of non-global products developed by industrial MNCs in China
Survey
results
30%
64%
34%
19%
2%
15%
Not
relevant.
We’re
content
with locally
developed
solutions /
products
not having
a high
share in our
sales mix.
Locally
developed
solutions /
products
have
already a
high share
currently.
Locally
Locally
developed developed
solutions / solutions /
products
products
share
share needs
needs to to increase
somewhat significantly.
increase.
Source: InterChina Survey with 271 MNC executives (Oct 2023); InterChina research.
Confidential
56
Locally developed, locally registered: 48% of MNC are proactively
Localize
increasing their IP registration in China.
Top payers and receivers for use of
foreign intellectual property, in USD bn
Q. “Are you registering
more IP in China?”
9%
Yes – moving more
global IP to China.
12%
Yes – by both moving more
global IP to China
and registering more
locally developed IP.
48%
27%
44%
Payers
Receivers
133
47
Yes – registering more
IP developed in China.
Ireland
125
59
No change.
US
34
Switzerland
30
Japan
21
Germany
18
18
18
Singapore
48
UK
Netherlands
Germany
Japan
2021
2001
117,049
UK
74,781
S. Korea
69,248
Turkey
65,924
United States
59,477
Germany
36,997
Japan
32,747
France
31,344
Italy
26,694
India
21,446
Russian Fed.
12,543
Spain
12,294
Switzerland
11,807
31
Switzerland
24
UK
23
Netherlands
18
Ireland
Canada
9,491
15
12
France
China
Australia
8,120
Brazil
6,711
79
ROW
Ukraine
6,122
Thailand
5,687
Mexico
5,353
ROW
No – moving IP
out of China.
2001
US
China
43
805,710
China
EUIPO
148
9%
No. of industrial design
applications by national
intellectual property offices
2021
Source: InterChina Survey with 271 MNC executives (Oct 2023); International Monetary Fund, Balance of Payments Statistics Yearbook and data files, EUIPO: European Union
Intellectual Property Office, InterChina analysis.
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IT Systems: 59% of MNC are planning locally based and more
sustainable IT solutions, in China for China.
Localize
Q. “Do you have an IT system in
China that is independent from
your global system (incl.
independent data storage)?”
China’s Cybersecurity Law, Data Security Law, and Personal
Information Protection Law have impacts on MNCs
System Architecture
23%
36%
42%
Not yet but
being planned
Yes - already place
No
 It will be more complicated and
costlier to manage data in China:
Separation, localization and thus
duplication of systems, cybersecurity
review across the value chain, spot
audits by CAC, etc.
 It will be harder to transfer data
out of China: Cross-border transfer
will be subject to assessment and
authorization by CAC, especially
personal information on PRC citizens,
including employees and consumers
(but possibly also IP related data
created in China, whether self-owned
or supplier-owned).
 It will become riskier to own
data: Not just personal information
on Chinese PRC citizens specifically,
but data more generally as the
definition of national security is
somewhat vague.
Source: InterChina Survey with 271 MNC executives (Oct 2023); Legal Consensus, InterChina Analysis.
To avoid cross-border data transfer, and triggering
security reviews by the CAC, an increasing numbers of
international companies are responding to the evolving
data security & management framework by building
stand-alone IT systems in China (including local cloud
solutions).
Assigning Responsibility
In a fast-changing environment, all companies should now
assign internal responsibility in China for (a) monitoring
changes in Chinese policy and regulation (b) ensuring
continuous compliance with requirements (possibly with
the support of a third-party IT consulting firm).
Local Partnerships
International companies will increasingly task their joint
venture partners with responsibility for data management,
and some will form local partnerships for this purpose (or
in part for this purpose).
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Delegation of Authority: Over the last 3 years, MNCs localized DoA for HR
Localize
and procurement. The next wave now is DoA in R&D and product portfolio
management
Q. ”Do you intend to grant more local authority in the following functions?”
In percentage of respondents, by function
Retain authority
at HQ or APAC level
Plan to increase
11%
19%
23%
23%
20%
28%
29%
19%
24%
12%
38%
14%
34%
38%
China has already
high authority
69%
57%
65%
Production
management
Source: InterChina Survey with 271 MNC executives (Oct 2023).
Country
management
21%
63%
45%
Sales and
services
44%
HR
Procurement
34%
Product
portfolio
management
41%
27%
R&D and
applications
Financial
management
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De-risk
Best Practices & Trends
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Risk Management Toolbox
De-risk
Supply chain
China For China
Diversification of
production footprints and
supply sources (in Asia, but
also within China)
Higher sourcing
localization for anything
made in China
Remove US content from
products sold / made in
China
Local IP Registration.
Investment in advanced
local capabilities, incl. local
R&D, product development.
Moving products / IP /
production out of US
jurisdiction to Asia or China
More Autonomous
Governance Structures:
DoA to China for Key
Success Factors
(Procurement, R&D, Client
Engagement)
Corporate structure
M&A or JV
to ensure Market Access &
Sustainable growth.
Portfolio restructuring
and divestments
To free cash and ensure
efficient and sustainable
structures
Financing
RMB x RMB,
Local bank loans @ local risk
(requiring strong asset base)
Sale & Lease Back
Carve outs of key assets,
either to seller or third
parties
Share investment Risk,
Private Equity and Strategic
Partnerships to reduce
Capex
Listing of local operations and / or participation in local stock markets
Source: InterChina Analysis.
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50% of companies are focusing on restructuring global supply base,
most of them by duplicating structures. “You want to source in China by
De-risk
choice, not by obligation”
Q. “Are you reducing your
dependency on China as a
global supply base?”
Q. “Looking 3 to 5 years ahead,
will you reduce your dependence
on China as a global supply base
(production and procurement)?”
Q. “If you plan to reduce your dependence on China
as a global supply base, how will you do it and
which other countries will you prioritize?”
Method
As percentage of respondents
Yes - moving to
new suppliers in
other countries
Yes - moving with
the same Chinese
suppliers to other
countries
Yes - duplicating the
same supply chains
in other countries
21%
23%
1.
Duplicating own production
in other countries.
1.
Mexico
2.
Duplicating procurement in
other countries.
2.
Reshoring
(US, EU)
3.
Transferring to new
suppliers in other countries.
3.
SE Asia
4.
Transferring own
production to other
countries.
4.
India
5.
Moving with existing
Chinese suppliers to other
countries.
5.
Eastern
Europe,
Turkey
12%
31%
23%
No - this is
not feasible
Not relevant
to us
Yes –
substantial
reduction.
38%
20%
19%
27%
Yes –
modest
reduction.
No major
change.
Not relevant
(little/no
dependence
currently).
Country
Several mentions possible
Source: InterChina Survey with 271 MNC executives (Oct 2023).
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De-risk
Shift from global to China financing towards RMB-RMB financing
Keep on investing but using RMB financing instead of retained dividends.
Q.”Have you changed your policy
on repatriation of your China
profits in the past few years?”
15%
No - we are continuing to
(mostly) repatriate profits
33%
No - we are continuing to
(mostly) reinvest profits
Not relevant
5%
25%
17%
Yes – reducing exposure
of our global balance
sheet to China.
31%
Yes – taking advantage
of lower local interest rates.
53%
No.
Reinvest
Yes - we used to repatriate
but now we are reinvesting
(a higher share)
Repatriate
Yes - we used to reinvest
but now are repatriating
(a higher share).
Q. “Are you increasing the share of
RMB financing (local bank loans) in
your capital mix in China?”
21%
Source: InterChina Survey with 271 MNC executives (Oct 2023).
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De-risk
Case Studies on RMB to RMB:
M&A financing and Refinancing Loans @ 3.5-6% Interest, non-HQ recourse.
M&A Financing
Refinancing
Financing period
Up to 7 years
Short Term Recurring Line
Financing %
Up to 60%
Replace Cash Pool Needs of
company
Credit History
Local level
Local Level
Interest Rate
4.5%
3.5%
Guarantee
Non HQ recourse.
Local pledge like real estate and
fixed asset pledge, share
pledge.
Non HQ recourse.
Local pledge like real estate and
fixed asset pledge, share pledge.
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Portfolio restructuring and divestments: MNCs looking to divest part
of their businesses to become more competitive
De-risk
In case you are considering a divestment in
China, what is your main strategic motive?
246 co’s
Not considering
divesting any
businesses in China
94
47%
1
94
Portfolio refocus
32%
It does not matter
28%
Local Chinese strategic investor (incl. competitor)
23%
Others
11%
International strategic investor
6%
International PE
1
62%
30%
Considering divesting
one or more assets
/businesses in China
In case you are considering a divestment in
China, who do you expect the investor to be?
38%
Spin-off underperforming or non-core BUs
2
Other reasons
11%
Strengthen the business
2
2%
Supply chain decoupling
3
11%
Exit Chinese market
Bring in strategic investor into a majority position 3 Reduce dependency on China supply base
Source: InterChina CEO Survey (April 2023).
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Local Stock Market Listing
De-risk
Q. “Are you considering a
local stock market listing?”
5%
Yes - currently being planned
15%
Of interest, but not
currently being planned
80%
No
The opportunity
• Reduced Global Risk Exposure:
Decreases related risks on the global
and local balance sheet.
• Government/ Stakeholder/ Brand
Recognition: Elevates company
standing with key stakeholders in a
'China for China' setting. Boosts local
image
• Access to Liquid Capital Markets:
Enables tapping into local capital
markets for future expansion. Provides
superior liquidity through China's more
active A-share market.
• Improved Market Valuation: Helps
adjust undervalued market positions
to a fair level in the local context.
• Talent Acquisition and Retention:
Eases talent recruitment and
retention, incentivizes management.
Source: LHS: InterChina Survey with 271 MNC executives (Oct 2023). Center, RHS: InterChina research and analysis.
Reference Points
International companies listed or
spun off on local stock markets
MNC
SE
2023
Ovodan
Foods
Beijing
Stock
Exchange
Ovodan listed local entity on
Beijing stock exchange.
2021
ACM
Research
STAR
ACM Research listed its local entity.
2021
Grinm
STAR
Grinm Semiconductor spin-off from
overseas controlling shareholder
and IPO on the STAR Market
2020
Wilmar
2019
AB
InBev
2018
Foxconn
2016
Yum!
Brands
Shenzhen
SE
Wilmar International spins off
Yihai Kerry Arowana A-Share
listing.
HKSE
AB InBev listed the local entity
Budweiser Brewing Company APAC
Shanghai
SE
Foxconn spins off Foxconn
Industrial Internet for A-Share
listing
HKSE
Spun off Yun China via listing,
with 7.6% owned by Primavera
and Ant Financial
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Conclusions
CEO takeaway:
No place for confusion and fear.
Local competitors and localized MNC are not waiting.
A new China playbook is required.
It is time for determination & action.
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A provocative Forecast… Many China based patented technologies and its
ecosystems will lead both in terms of Scale and Speed of growth, becoming
massive.
“We estimate
China’s IIOT
market will
septuple by 2030,
driven by policies
and technology
innovation”
China CEO, USA
Electronics MNC
“What we see in
China based AI
Imaging technology
advancements and
its market
applications could
lead to X12 growth
this decade”
Global Board
Member, SaaS MNC.
Source: InterChina Analysis.
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Lack of trust is a major challenge. Empathy, sensitivity and curiosity
will be critical to understand the new reality and react to it.
“We are entering in an era of the fragmentation of truth by media.
We will need to read the extremes to find the middle”
Western narrative
Taiwan
Russia
Microchip ban
Real Estate Crisis
BRICS+
Source: InterChina Analysis.
Chinese narrative
• Warns Against China's
Aggression
• Supports Taiwan's Autonomy
• Peaceful reunification as part of the “One
China Policy”
• Is an internal affair
• Forming Anti-Western Axis
• China actively supports
Russia
• Neutrality such as Brazil, India or
South Africa
• Mutual economic benefits
• Securing national interests
and Espionage/Security risks
• Countering Chinese Tech
Dominance
• Unfair trade and market practices
• Highlights China’s tech innovation
resilience
• Might end in China’s
economic collapse
• Fears of global economic
impact
• Recovers control over a sector out of control.
• Focuses on market stabilization
• Debt control measures
• Challenge to the Western order
• Power is shifting towards
“undemocratic” countries
•
•
•
•
Multipolar world
Promotes Emerging Economies' Rise
Fairer Global Governance
Non-interference in internal affairs
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The growing gap between HQ and China is worsening every year. It
has become a source of competitive disadvantage
Same object, but different views
Key differences how global executives and local executives see China
“More than one third of my time is
invested in managing HQ expectations…
non of my local competitors have this
challenge”. CEO Chemical MNC
Future role of China
Consider China as a source of innovation and technology
Group
CEOs at
HQs
No. 2 reason (after
“market size / growth”)
No. 5 reason only
Clear and present danger
Main source of Chinese players’ competitiveness
“Unfair advantage
(preferential policies)”
Executives
of MNCs
in China
“Speed (responsiveness,
new product launches)”
Local margin
Willing to accept lower margins to drive China business
27% are convinced to
accept lower margins
Source: InterChina Survey with 271 MNC executives (Oct 2023).
65% will do it or think
they should do it
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CEO Agenda 2024
1
What are the factors determining my ‘New China Playbook’? Do I go or do I stay?
How strategic is China for me and how strong is my position? Can I afford not to be in China? Am I active in
the ”Open” or “Restricted China”? Do I perform in the “New Growth” or “Deep Consolidation China”? What is
my customer’s perception of my risk?
How do I engage?
2
3
How do I remain/become relevant (scale)? Should I consider alternative M&A models to achieve scale and
localization, or to de-risk (minority participation, listed co’s, stock listing, corporate VC and participation in the new
Ecosystems)? What about globalization of Chinese companies: is that a sales/partnership opportunity, or a
competitive threat, or both?
How do I localize?
What does it mean to be “more Chinese” for me? Political vs commercial localization; How to localize innovation,
R&D and IP? DoA vs control; Do I have the right customer mix? How to address better Chinese customers? Can I
accept lower margins in China?
How do I mitigate risk?
4
5
How to de-risk my supply chain in China and globally: global sourcing in China ‘by choice’, and 100% local sourcing
for China; portfolio re-assessment incl. divestments; balance sheet de-risking: Rmb exposure, local financing; IPO?
partnerships and JV’s; How do I deal with stakeholders in relation to China, in particular financial markets/analysts
& employees; autonomy of local operation in case of crisis;
How can I achieve and/or maintain alignment between HQ and China teams?
What governance model allows us to be close to China, but still retain our corporate DNA?
What can I learn from MNC best practices in building alignment? How regular should global management visit? How
can I leverage the renewed interest of employees for overseas assignments?
Source: InterChina Analysis.
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