Why the China economy still matters: McKinsey’s playbook for multinationals

The China economy, despite a post‑COVID lull, remains the linchpin for multinational strategies, says McKinsey’s Greater China chair Joe Ngai. When he first aired the mantra “the next China is still China” on social media, the nation was grappling with weak consumption and a property slump. Today, advances in artificial intelligence and a resurgence of export‑oriented firms have reshaped the narrative.

China economy: No substitute in sight

Ngai tells Fortune from a Hong Kong office that firms “can’t find another China”. The new book, co‑authored with McKinsey Global Institute director Nick Leung, lays out a playbook for companies that refuse to abandon the market. Competitive pressure is relentless. Legacy brands such as Nike, Starbucks and Volkswagen now face home‑grown rivals that undercut prices and out‑innovate. BYD, the world’s largest EV maker, slashed prices, triggering a ↓ 55% profit plunge in Q1. In food delivery, JD.com’s entry sparked a subsidy war that cost the sector over 100 billion yuan in two quarters, pushing Meituan into three consecutive loss periods.

“China is the world’s toughest gym,” Ngai says, noting that only the fittest survive.

The intensity mirrors the “cowboy capitalism” that once defined early‑stage America, according to Leung. Yet the market’s scale is undeniable. Retail sales rose ↑ 0.2% in April – the slowest pace since the pandemic peak – while industrial output grew 4.1%. Neither Vietnam nor India can fully replace China’s manufacturing depth. Multinationals that have restructured for local agility—Coach, Logitech, or Volkswagen’s joint ventures—are faring better than those clinging to a global‑headquarters‑first model. Leung argues that a “China‑for‑China” mindset, from capital to design, is now a prerequisite for relevance. The broader geopolitical climate offers a “cold peace”. President Trump’s May visit to Beijing yielded a modest Boeing order of 200 jets, but no sweeping trade breakthroughs. As Reuters notes, the U.S.–China relationship remains tense, yet business fundamentals in China persist. In sum, the China economy is not a passing phase; it is a rigorous proving ground that shapes companies capable of thriving worldwide.

Dispatch from Arthur Sterling (Macroeconomics Editor).