A crowd of pedestrians crosses the road outside the Taikoli Sanlitun shopping complex in Beijing, China, on August 22, 2026.
Chen Xin | Getty Images News | Getty Images
Hello, I’m Evelyn. I am writing to you from Beijing. Welcome to the latest edition of The China Connection. This is a snapshot of what I’ve seen and heard from local businesses.
As more Chinese companies than ever look outside China, foreign companies are wondering whether to stay in China. The leading consulting firm has some unconventional reasons why the answer is yes.
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China is not headed for Japan-like stagnation — or a major decoupling with the United States, McKinsey’s Nick Leung and Joe Ngai write in their new book, “The Next China Is Still China: An Insider’s Strategy for Winning in the New Era.”
These offer a completely different business framework than current assessments, including a slump in Chinese consumers, a long-term drag on real estate, and supply chain diversification.
A key factor? Spending to catch up with China’s global manufacturing advantages and frontier technologies, they said. In many ways, the party appears to be over for many American and European companies that once enjoyed significant advantages in China.
What multinationals need to realize is that today’s disappointment is a contrast — the 20-year market share advantage in China is sometimes greater than in other overseas markets, Ngai, senior partner and chairman of McKinsey’s Greater China office, told me last week.
China’s local rivals are also often disappointed, he said, pointing to overcompetition, or entanglement, in a slowing economy.
Mr Ngai said that to win in the long term, companies need to invest in China to remain relevant in the huge consumer market and, as a result, remain competitive in other countries where Chinese companies have a presence.
One such area is AI-powered education products. Lingverse COO Anita Wang told me that the company plans to officially launch owl-themed reading software in the U.S. this fall. She said her team is also in talks with some school districts in Florida to use AI-powered learning devices during field trips and other activities.
Despite rapid global growth, Chinese companies also face significant challenges. Beverage and affordable beverage chain Mixe has opened four times as many stores as Dunkin Donuts in a short period of time. However, the stock price fell last week as cost of goods sold grew faster than sales, and first-half profit fell 14.7%.
Since the pandemic, retail sales in China have grown at less than half the pace of a few years ago. Starbucks has sold a majority stake in its local operations, and other major U.S. companies have also scaled back operations amid geopolitical tensions.
Ngai said a number of foreign companies are in talks with Chinese private equity firms about local partnerships, but for now “there are more discussions than deals being finalized.”
Every industry is different, and some areas, such as technology, are more sensitive than others and require their own guardrails. But McKinsey’s regional leaders wrote that for many executives, the conclusion after a hard search for alternatives in recent years is that China will be hard to ignore.
—CNBC’s Jenny Lee contributed to this report.
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