Transcription
This week on the agenda, why the next China is still China. We speak to author and chair of Mckenzie Greater China, Joe Guy.
In the past four decades, China has transformed itself into the world's second largest economy. But with a slowing population, rising geopolitical tensions, and growing questions about the future of global growth, many are asking, where will the next China emerge?
According to a new book co-written by Joan Guy, chair of McKenzie, Greater China, and senior partner Nick Lung, the answer is simple: The next China is still China. The book sets out an insider's guide to succeeding in this new era of Chinese growth and opportunity. And I'm delighted to say that Joe Guy joins me now. Great to have you on the agenda, Joe.
Now, your book argues that the next China is still China, but we are seeing tariffs rise, supply chain shifts, and foreign companies becoming more selective about where they invest. So, what are global CEOs seeing in China that the markets are missing?
First of all, thank you for having me here. I think in the last couple years I have really seen foreign CEOs have a very deliberate China strategy. I think about three years ago, I think it was all around kind of China plus one, right? Like, where is my alternative? Is it Vietnam? Is it Cambodia? Is it India? You know, is it Mexico? Um, and I think the more people looked, um, I think it's very interesting, um, the more people then find out that, um, there are very few alternatives to China and at the same time, China is technologically, um, actually getting more and more advanced.
So in this year 2026, I have seen more CEOs and boards and executive teams actually have their meetings in China. Why? Because they want to understand how can China, China tech, China advances, China AI, China supply chain help my company to advance in a way that I did not think about before. So I think that it's actually very interesting how CEOs have morphed from thinking about China as a 1.3 billion market that I sell into, into a market where China is a place where I find inspiration.
You talk about there being three engines that drive China's success: policy, capital, and culture. How would you say that the Chinese approach to those three areas is really different?
Oh, I think that you have a government that actually is very progrowth and very probusiness. I think that that leads to an environment in China where actually in every province, um, the local government supports the local businesses, right? So they all compete against each other. I think, you know, in China is where you have this, um, what I call, you know, the world's, you know, um, toughest gym, right? Where companies, the competition, the business ecosystem, right, is actually ultra competitive because everyone is kind of probusiness, is progrowth, is trying to, um, you know, enable companies, um, to expand either locally, domestically, or increasingly, um, globally.
At the same time, you have actually a lot of capital. Um, the capital is, you know, both, um, state-owned capital, but there's also a lot of private capital. Um, there are a lot of second-generation entrepreneurs, right, who were very successful, right, in the early 80s, 90s, that now plowing back the money into the current, um, you know, entrepreneurial efforts, right? So you actually have a lot of capital coming into, um, these businesses where, I think, maybe second to, um, the US Silicon Valley type, um, capitalism, I think the Chinese, um, funding, um, for early stage and venture is actually second to none.
And then, you know, lastly, I think there's culture. I think in China, um, the culture is one where, um, the toughest one that survives will win. Yeah. And so basically, you have these companies that are just very resilient. Um, they sometimes go through really tough battles. Um, these business cycles in China are notorious. Um, you know, lots of blood everywhere, right? Lots of casualties, but the ones that actually, um, you know, end up, you know, being the winners, they become globally competitive, right? And globally significant companies, right? And that's a little bit that the culture in China on the business cycle side enables these companies, um, to be the way they are today.
You mentioned Silicon Valley and you've talked a little bit about technology, which makes me think about China's 15th Five-Year Plan with this big focus on leadership in artificial intelligence, in advanced manufacturing and semiconductors, and also green technology. So, you know, beyond the policy ambitions, is China's real advantage that now the strength and the speed of this innovation ecosystem, to steal a phrase of yours?
Absolutely. I think right now, um, in the China business world, um, I think AI and innovation is everything. People have experienced in the past 15 years how much technology, um, can accelerate and help companies leapfrog. Um, so when AI came along, everyone is all in. Um, I think, you know, in some countries, people have a lot of fear around AI replacing jobs or maybe is AI good for community or society. I don't think you really have these questions in China. I think, of course, there are always, um, some trade-offs in AI, but everyone agrees that we have to be all in AI, we have to use the technology, um, and that's the only way of progress, right? And so in China, AI is also under involution, if you will, is that there is actually fierce competition even among AI companies.
So it's a mindset you're talking about, but you also write about China's speed, which I think is interesting. We've seen it in electric vehicles, we've seen it in solar, in batteries, and now, as you mentioned, in AI. You know, why has China become so effective not just at innovation, but at commercializing it and scaling it?
I think China actually has a very large domestic market that is very open for new ideas, new products. Yeah. Um, I sometimes call it the featurization of China, where, you know, when you see an advertising in China, they talk about, you know, this phone, what's the camera, you know, what's the processing power, you know, when you see a car, it's around, you know, what's acceleration, you know, what's the mileage you can go on on on on the battery, yeah. And so therefore, you know, at the core of it, I think Chinese companies compete on, you know, how they come with more features, more value for money. They try to cram more into less. They try to compete on also value, you know, and cost.
So what you have is the China speed is for survival, right? Chinese companies move very fast because that's the only way to come up on top, right? So I do think that, you know, at the end, will some Chinese businesses rather move a bit more slower, take a few more occasions? I think everyone in their hearts, maybe they want to, but they know they can't because in some ways, this business ecosystem, the cycle, the competitive pressure intensity makes it so that we have to move at China speeds, right, in order to be around, in order to rise, next challenge, in order to compete against the next guy that's trying to come in to take us over. Yeah. So I think that that's a little bit where, out of necessity, out of our own ability, and out of the market receptiveness, right, to new products and new ideas, then you arise this kind of China speed, partially pushed by the market, partially kind of pulled by, you know, competitors around.
But for so many years, China was seen as fast followers. And today, that's completely changed. From sectors from automotive to consumer technology, they're setting the pace. You know, are we entering a period, do you think, where Chinese companies stop being seen as challenges and start shaping those global standards, those innovation trends?
I think this has long been a play, right? So if you think about today in pharmaceuticals, 40% of the global drug pipeline actually exists in China right now. If you think about advanced manufacturing, I think the use of robotics, the use of AI, the use of, you know, dark factories. I think China actually leads the world. I don't think China has a monopoly on technology, right? Look, I think that there are many spots around the world where there are incredible things happening, and I think that that's great. But I think that, you know, people who are in the know, they understand that, um, China is no longer just a fast follower. So I think that, you know, around the world, China really is now emerging as a hot spot for innovation, for ideas, for inspiration.
You've talked a lot about the domestic picture in terms of the capital, in terms of the workforce drive, but there are external factors that play into all of this too. You know, the US tariff strategy was designed to slow China's rise in strategic sectors. Has it though actually maybe accelerated China's push for technological self-reliance?
Well, I think around the world today, I think that being more resilient, being more self-reliant, is a theme in many countries around the world, right? US, China, Europe, you know, Middle East. I do think that people are putting security and resilience as part of the themes, right, of what countries need to do. Um, and I do think that in China, obviously, this has been a theme in the latest five-year plan. And so therefore, the investments in some of these technologies, in chips, in AI, I think is actually obviously accelerating.
One important part of this is also energy. I think in the past 10 years, China has actually invested in a lot of green energy. Um, and so therefore, if you think about the mix of energy today, I think China actually has one of the most interesting and greenest energy supply. Um, and it's coming on, you know, at a scale that also allows it to be low cost, right, which I think is also being quite helpful as AI and the uses of tokens and the uses of energy and compute is being quite an important element of competitiveness today.
When we look at China's AI plus strategy, it does look very different from the race we're seeing in Silicon Valley, for example, which is very much focused on chatbots, or it's much more consumer-focused. Embedding AI into manufacturing, logistics, industrial productivity is more the direction we're seeing in China. Do you think China sees AI as primarily an economic infrastructure story, then, rather than a consumer technology story, or is that simplifying it too much?
China is a big economy, and I think that the consumer technology story is very much there. Um, if you think about the leading companies, right, whether this is going to be the Tencent, Alibabas, the Byte Dances, and all those, I think everyone who is consumer-facing are very much in the AI game right now as we speak. Yeah.
But the other part, which I think is quite distinctive in China, is what I call the physical AI side. And the physical AI is really where you have AI, but you combine that with the physical manifestation, right? The clearest place where this comes is, you know, autonomous vehicles or in robots, right, which basically is a vehicle that can do things or a robot that can drive. Yeah. But I do think that, and that comes because China has a supply chain that actually is very, very deep, very, very responsive, and is very cheap, right? And so therefore, if you think about robots, and it doesn't need to be humanoid, it can be, you know, any kind of factory or manufacturing robots. Um, I do think that there is quite a lot of experimentation and innovation in that sector. It's very fragmented. It's very competitive. But I think that that competitive intensity will emerge a lot of very interesting physical AI manifestations in robotics and in autonomous vehicles, which I think you're seeing today. Um, so I think, you know, globally, everyone's going to be into AI, but I think in physical AI is where China actually has an edge because of the supply chain.
And that edge is very important, presumably, to other parts of the world like Europe. But when you think of Europe wanting more strategic autonomy and wanting to get involved with industries like autos, autonomous vehicles, green tech, and advanced manufacturing, can you remain competitive without China?
Well, I think that that, you know, is a story that we need to continue to see how it plays out. But, you know, as I think a lot around European CEOs who have been visiting China and what they tell me, I believe that actually part of the solution to Europe's, you know, search for their re-industrialization, or the next era of their industrialization, I think, you know, it can well have some Chinese components in there. Um, I think in a couple of ways, right? Number one, I think that there are more Chinese companies and technologies that could actually have their manufacturing, the technology know-how, to be transplanted over in Europe that can create jobs, that can lead to tech transfer, and that can lead to, you know, in some ways, a roundtrip story. You know, once upon a time, I think, you know, Germany and a lot of European manufacturers came to China after WTO established JVs, and actually helped China industrialize. I think part of what China is very good at today, right, on the advanced manufacturing side, right? Maybe they can go to Europe, do these JVs, and also help in the next chapter, right, of Europe's manufacturing, right? So that's that's kind of one area where it's interesting.
The other one is where I think China used to be kind of the factory for the world. It still is in many ways. Yeah. But I think a new idea is China can be the factory for factories. So, um, if I think about the new factories that we need to build right around the world and in Europe, right, I think where are you going to get the machines from? Where are you going to get the components from? Where can you get all the stuff that actually is going to go into your factory that also is in some ways most competitive and most in some ways agile? That supply chain in China. So in some ways, I think the China will be supplying for your factory, and then it's going to be your manufacturing. You know, in one way or another, I think we'll find China in parts of the self-sufficiency of Europe. And I hope that that's also an area where more collaboration can be found and there's more of these cooperation that will lead to kind of win-win and, to be honest, faster, cheaper, much more valuable money rather than doing everything ourselves.
Joe, one of the most striking ideas in your book is this hyperswitching Chinese consumer. Companies once spent years building brand loyalty in China, and now it seems that they can just change that overnight. What do you think that really says about just how competitive the Chinese market really is?
Yeah, it's really the dynamism, right, of the Chinese market that creates the opportunity, but it's also a big source of frustration and fear, and corporate anxiety, right? I mean, in some ways, you can be building your brand for a long time, but when a newcomer comes with a better product, it can really displace you very quickly. And I can't think of any market in the world where people switch so quickly than in China. People are, I don't think that they are this loyal, but I think that they're eager to try new things, and they have tasted why trying new things is actually a benefit.
So I do think that, you know, in China, for example, you have people switching to electric vehicles faster than any other country in the world. Of course, there were incentives and also there's infrastructure, but at the same time, people were very happy to, okay, let me try the EVs. It looks pretty good. It drives pretty well, so why not? People were very, when the flip phones came up, you know, where you have this foldable phones, right? Everyone was very worried, is that going to last or not last? In China, the foldable phones sold very well because people were like, okay, let's try that. Right? When there was like digital finance came up, people were like, okay, I'm happy to change my bank accounts into digital-only bank accounts, even though that bank doesn't exist physically. I'm happy to have confidence in it.
So I do think that in China, because you have a rather young and, you know, in some ways maybe not so young anymore, but they're young at heart, you know, like they're very happy to try new things, they're very technologically curious. Curiosity is the right word, right? So they're very curious, they're very eager, right? And so therefore, trying new things, and when Chinese companies make it very easy to try new things, it becomes a threat to the incumbent because you are always someone looking at you and saying that, well, how can I do that better? Right? That's where advancements and progress comes in, but it's also a threat to everyone who have invested in capital, and that's also why the market, you know, sometimes is a very tough market to be in.
So Chinese consumers revel in the new, in newness, is what you're saying. But as you've also mentioned, for years, those multinational companies have treated China as a sales market. Your book though suggests that the model is shifting towards "in China for China" and even "in China for global." What does that look like in practice, Joe?
Well, I think that, you know, it's very clear that you can no longer just take what you have anywhere in the world and just sell in China. Now, for some, it still works, huh? If you are a luxury player and you have a great bag that is in high demand, I think that you'll still find a lot of Chinese consumers waiting in line to find your bag, and you make very good business there, right? But for most products around the world, um, there are actually quite a lot of substitutes, right? And Chinese companies, um, who have grown rapidly over the years, to create localized versions of your products, right? Sometimes cheaper, sometimes have different features, sometimes it's more local. So therefore, for foreign companies, I think that the necessity to localize operations in China, to localize the product features in China, to localize the supply chain in China because it's just cheaper, more effective, and faster than elsewhere in the world, I think it's a must if you want to have a big business in China. Yeah.
So I think that that's one. And then as you do that, right, what happens is that, well, wouldn't consumers in the rest of the world like that product too, at that price point? Right? And so therefore, you start thinking, well, it's not only in China for China, but perhaps it's going to be in China for the world. Right? Of course, we would use some of the often-cited examples, right, whether it's electric vehicles, or whether it's going to be, you know, the phones, right, or others. But I do think that increasingly, um, you know, all the way from, you know, medical equipment, to instruments, right, you know, why wouldn't you think about classical instruments being made in China, but for the rest of the world? So I do think that that story has actually been playing out now for years, but increasingly, I do think that a lot of people have been able to improvise on it and come up with actually better products at better price points. And by the way, that makes things better for consumers around the world. I do think that, you know, one of the less appreciated facts, right, of the Chinese manufacturing engine, right, is that it really brought about the better standard of living around the world by getting products faster, cheaper, better quality, and can provide us with a lid on inflation around the world.
As the plate tectonics of the global economy keep shifting in the way you're talking about, we do hear far more discussion about de-dollarization, oil trade in local currency, BRICS financial coordination, cross-border payment systems outside the dollar. And is this still largely symbolic, do you think, or are we seeing more fundamental changes in how global commerce, global finance operates?
In the last few years, I think that you see a restructuring of global trade, right? You see new trade corridors happening. Um, it's not only China, right? I do think that, you know, the South-South trade is not only China trade. You see more trade in Latin America. You see more trade in, you know, from the GCC. You see more trade from Southeast Asia. So I do think that there are more economic trade corridors established around the world. Um, and so therefore, right, as a very natural extension of that is how finance and the financial structure is being rearranged, right? So you see also more emerging market banks being involved, you see more trade banks being involved. So, you know, I look, I do think that we have lived in a very largely dollar-denominated trade world. In many ways, it still is. But I do think that you're seeing more alternatives out there. And I do think that as we go into a more diversified world, I think that that will likely continue.
You know, Joe, the last time you and I were able to have a conversation like this was in January at Davos. Since then, the world has become so much more fragmented economically, politically. So when you look ahead, the next six months, but also let's go a bit further, let's go five years. What makes you most confident about China's position in the global economy?
One word: technology. I think in the past 20 years, I think we have seen how much technology, and in the last 20 years, really around digital, can do to an economy and can do to companies, can do to efficiency and effectiveness. Yeah. And I think if you think about the next 20 years, it's very clear where that's going to come from, right? It's coming from more technology, whether that's going to come from AI, whether that's going to come from more sustainable energy sources, whether that's going to come from other areas of innovation, right, such as biotech, or other places. I think that it's going to be in the leapfrogging is going to come from technology, right? If you look into every part where technology plays a very big role, I think China has been investing in these areas in the last few years. Um, and I think that because of that, right, I think that many Chinese companies, many foreign companies that operate in China are very well-placed in these arenas where I think will provide the growth of the next five years, right? So, um, if you believe in this story, right, that technology and keeping up and leading in technology is actually the way how progress will be made for the future, um, I think China is well-placed. Right? There are of course other economies that are also well-placed in there, but I think, you know, China has many, has many, we have many good cards in our hands, right? And the question is how do we play that out?
And the question is also, what does the rest of the world need to do then to prepare for this new China?
I keep telling CEOs, and I'm in the private sector, so I tell CEOs. Right? I think for governments, that's a maybe slightly different or more complex picture, but for multinationals, as they think about how do I deal with this new China, this next China, I think there are some parts that are very inevitable. Right? I think that, for example, I think this supply chain and the competitiveness of the Chinese industrial engine, some of the ways how AI and robotics is playing out in China. I think you come see for yourself, you look at the ecosystem, you look at the pipeline of what's coming, it's pretty clear that there are going to be some pretty amazing technologies and companies coming out.
If I were a global company, right, looking at my next few years, right, I would think very much around how do I collaborate with that? How do I find that to become a part of my supply chain? How do I leverage that to be something that actually makes me more competitive? Remember, right, we are also at a stage where these Chinese companies are looking for global markets more than ever before, right? So these Chinese surge of Chinese companies going global can be part of your story, part of your next chapter, right? So I would very much think about what would my next chapter be and how can these Chinese companies play a role in there. Otherwise, you can think of it as these are going to be my competitors, and how do I compete against that is a far more difficult and challenging picture. Think about what if that becomes kind of part of what I am now. Of course, you got to play the right way, you got to figure out like how do I have my own value and my own identity, right? And so I won't be replaced. But I do think that some of these inevitable patterns that are going to happen, I think if you kind of understand that, there is actually a lot you can do with that. And I see that as one of the biggest opportunities if I were a multinational CEO and I think about what does this next China mean to me. I think there's a lot you can do with it.
Joan Guy, thank you very much.
You can watch every episode of The Agenda in full on CGTN Europe's YouTube channel. And for exclusive extra content from me, my guests, and the rest of the team, don't forget to check out @theagendashow on TikTok. Coming up on a future agenda, 10 years on: How has Brexit really changed Britain? But for now, from me, Juliet Mann, and from all the Agenda team here in London, goodbye.