As 2024 gains momentum, it’s significant to note that this year is marked by the Year of the Dragon according to the Chinese zodiac. The dragon, symbolizing strength and good fortune, frames the backdrop for China’s journey forward after a challenging 2023. The previous year saw China navigating the aftermath of the pandemic, with its economy starting to recover from stringent lockdowns and travel restrictions.
Despite substantial challenges in the real estate sector and flagging consumer confidence, the economy registered a number of notable gains. China not only surpassed its GDP targets with 5.2 percent year-on-year growth, it also played an important role in the expansion of the global economy, contributing approximately one-third of total global GDP growth.
2024 is anticipated to be a transformative year for China, especially in key areas such as biopharmaceuticals, agriculture, multinational corporate performance, generative artificial intelligence (GenAI), and consumer brands.
In the biopharmaceutical sector, China’s progress signifies its expanding role in the global pharmaceutical landscape and its innovative capabilities in drug development. The agricultural sector continues to impress with its efficiency and productivity, with China playing a pivotal role in feeding a significant portion of the global population and asserting itself as a key player in the global agricultural market.
For multinational corporations, the operating environment in China presents a mix of challenges and opportunities. The diverse outcomes among these companies underscore the dynamic nature of China’s market, with some experiencing robust growth while others face challenges.
The potential of GenAI will start to be unleashed with the proliferation of applications, the rise of a domestically-powered enterprise software market, and advances in chipset technology.
The emergence of Chinese consumer brands on the global stage highlights China’s growing influence in the global market through innovative products and strategic marketing.
These developments signal a period of significant change for China, aligning with the hopeful and auspicious spirit of the Year of the Dragon.
Biopharmaceutical innovation
China is making significant strides in the field of biopharmaceutical innovation. Although the country has established strengths in efficiency-driven and customer-focused innovation, it has generally lagged in science-based innovation. However, recent progress in biopharma innovation, particularly in scientific research and development, signals China’s emerging leadership in certain areas of science-based innovation.
There has been steady progress across the biopharma innovation value chain. In basic research, China is rapidly catching up, with a 16 percent compound annual growth rate in the number of top one percent most highly cited biomedical publications between 2018 and 2022, contributing 8 percent to global output. In the realms of drug discovery and clinical trial execution, Chinese companies have shown advantages in speed and efficiency. In selected examples, China-based biotechs have reduced the time required to move from drug target validation to pre-clinical candidate by 30-50 percent, compared to the global industry average.
Chinese companies are employing a uniquely Chinese approach to rapidly and effectively scale up experimentation. The development of ADCs (antibody-drug conjugates) exemplifies this. ADCs, which represent a new method of treating cancer by delivering drugs directly to cancer cells via antibodies, minimize side effects and enhance precision. China is capitalizing on its large talent pool in chemistry, biology, and bioengineering to swiftly iterate on the latest technologies, mirroring trends observed in other industries. The country also leverages its scale, speed, and efficiency to expand these innovations.
Global companies, initially skeptical, are now paying close attention to China’s progress and recognizing genuine advances beyond mere imitation. Recent partnerships and acquisitions involving China- oriented products or companies, reflect growing confidence in China’s scientific contributions.
From the perspective of China-based biotechs, forming partnerships is particularly appealing due to gaps in development and commercialization capabilities outside of China. A small number of these biotechs are poised to become global biopharma companies, characterized by globally competitive innovation, extensive value chain capabilities, a global culture, and robust funding.
China’s agricultural ascendancy
The global agricultural landscape is undergoing a transformative phase, prominently marked by China’s ascending influence. Utilizing a mere 9 percent of the world’s arable land, China astonishingly produces nearly a quarter of the world’s grain and half of its vegetables, along with significant quantities of aquaculture and pork. This remarkable productivity feeds 20 percent of the global population, a testament to China’s efficient land use and agricultural prowess.
In 2024, we can expect this trend to strengthen, buoyed by China’s continued push for agricultural scale, industrialization, and intensification.
China’s status as the world’s fifth-largest agricultural exporter saw a notable leap in 2022, with export values increasing by 16.5 percent, surpassing the growth in imports for the first time. This upward trajectory in exports is a trend of considerable importance, positioning China as a formidable force in the global agricultural market. Stability in domestic product pricing amidst international market volatility adds to China’s competitive edge, a trend that is likely to gain further momentum in 2024.
The year 2024 is likely to witness China’s continued dominance in key agricultural sectors. Notably, in aquaculture, vegetable, and pig production, China’s production levels are staggering, accounting for 57 percent (2020), 52 percent (2021), and 48 percent (2022) of global output, respectively. Particularly in the vegetable sector, China’s world-leading total and per capita production reflect continuous advancements in seedling and planting technologies. Moreover, China’s per capita vegetable production in 2021 stood at a remarkable 413 kilograms per person, dwarfing India’s 98 kilograms per person, the second-highest in total vegetable production.
China’s burgeoning role in new agricultural markets is a significant trend. In 2021, China overtook the US and Peru in blueberry production, reaching 477,000 tons, a staggering 27 percent of the global output. This is a clear indicator of China’s potential to diversify its agricultural exports. Furthermore, China’s prominence in kiwifruit production, accounting for 53 percent of the global production in 2021, and its accelerating export growth rates, point to a strategic shift toward tapping into international markets. This is evident in the growth of exports outpacing imports in kiwifruit, with exports increasing by 66 percent from 2018 to 2022 compared to a 20 percent increase in imports.
China’s increasing influence in global food security and sustainability is a critical trend for 2024. Its role in producing and exporting key food ingredients and processed foods, like its dominance in the canned food market, underscores its potential impact on global food supply chains. In 2022, China accounted for 27 percent of the global canned food exports.
The country’s ongoing technological innovations, such as the development of automatic citrus peeling equipment, signal a future of heightened global presence in food exports.
The rapid advancement in China’s livestock sector, including the breeding and processing of pigs, broiler chickens, and dairy cows, is poised to reshape regional trade dynamics in 2024. China’s role as a major importer and exporter of livestock products highlights its growing influence in the meat market. Notably, China has become the second-largest source of chicken product imports for Japan. Post-recovery from the African swine fever, China has resumed pork exports to Southeast Asian countries, including Laos, marking a significant rebound and potential for growth in neighboring markets.
Looking towards 2024, the trends emanating from China’s agricultural sector are not merely reflective of the nation’s internal growth but also signal a broader transformation in the global agricultural landscape. China’s strides in enhancing production efficiency, expanding export capabilities, and pioneering agricultural innovations suggest an era where it will play a central role in global food security, market dynamics, and sustainable farming practices. China’s agricultural dynamics present a compelling and consequential trend to observe in the upcoming year.
Diverging performance of multinationals in China
In 2024, multinational companies (MNCs) in China are set to face a landscape of divergent fortunes, a trend underscored by the bipolarization of performance metrics. Our analysis of large MNCs in China reveals a striking dichotomy: Top-performing MNCs are experiencing robust growth, while their underperforming counterparts are contracting.
Overall, MNCs are encountering challenges in China. In 2023, MNCs in the industrial sector, for example, observed a 5 percent dip in revenue compared to 2022, with their revenue share slightly declining from 21 percent to 20 percent. Our analysis of Fortune 500 MNCs that disclose their revenues in China highlight an historical divergence in their performance. Over the past decade, the top 25 percent of MNCs have exhibited robust revenue growth of 15-20 percent per year, while the bottom 25 percent experienced an annual 3-5 percent contraction.
The relationship between MNCs and China is undergoing significant reappraisal. While MNCs generated a staggering $4 trillion in revenue in 2022, and about 65 percent of US companies anticipate China’s revenue growth to match or exceed global growth in the next 3-5 years, investment sentiment is turning cautious. AmCham and European Chamber surveys in 2023 reflect this shift, with a decreasing percentage of companies ranking China as a top three investment priority compared to previous years.
The relocation trend is another pivotal factor influencing MNCs in China. The drop in Foreign Direct Investment (FDI) into China—attributed to declining profits of MNCs, tax incentives in home countries, and rising interest rates—poses a critical question about new investments in China. However, this trend also signifies a potential strengthening of economic ties between China, Southeast Asia, and India, as part of a diversification strategy. Notably, 10-20 percent of companies are considering relocation, according to American Chamber of Commerce and European Chamber of Commerce surveys. This could intensify the linkages within the region, especially given China’s role in supplying intermediate goods.
These dynamics suggest a complex and evolving landscape for multinational companies in China, characterized by both opportunities and challenges in a rapidly changing global economic context.
The growing importance of Generative AI
As with many other countries, GenAI is becoming a priority battleground for companies in China. Here’s what we can expect from their efforts in this rapidly- growing field.
According to McKinsey estimates, generative AI is expected to be a significant contributor to China’s economy, with the potential to add up to $2 trillion to GDP. This is part of a broader $6 trillion economic impact expected from AI in China. This monumental figure underscores China’s critical role in the global operations of several key sectors, notably advanced manufacturing, consumer electronics, semiconductors, and consumer packaged goods. GenAI is expected to create hundreds of billions of dollars in additional value in these industries in China.
Leveraging its large market size and homegrown innovations, China is likely to see a number of GenAI applications emerge, including short video creation, e-commerce, education, and the Internet of Things (IoT). For instance, in e-commerce and short video platforms, GenAI can offer exceptional levels of personalization and empower more dynamic and efficient content creation. In education, GenAI can offer a highly tailored learning experience for students.
The enterprise software sector in China is another area undergoing rapid transformation, with significant growth of China’s software and SaaS industries in recent years. There will be more locally-developed Large Language Models (LLMs) that can embed GenAI into these offerings to further expand their functionality.
Another area where China is expected to stand out in 2024 is AI inference at the edge, which refers to AI operations taking place directly and rapidly in a device such as a smartphone, rather than by accessing applications in the cloud.
With a projected exponential growth in the edge inference market, China’s ability to integrate AI in smartphones, IoT devices, and electric vehicles (EVs) will enable real-time interactions and decisions, enhancing the user experience and operational efficiency. This capability is particularly crucial in a world increasingly reliant on smart devices and connected technologies.
Despite these positive developments, China’s GenAI journey in the coming year will not be without its challenges. One of the significant barriers is the restricted access to advanced AI chipsets, essential for training sophisticated GenAI models. External restrictions and technological limitations have hindered China’s ability to produce these crucial components, impacting the development of advanced GenAI applications. However, China’s continued investment in AI hardware and efforts to narrow the gap in inference chips demonstrate its commitment to overcoming this challenge.
The quality and effectiveness of China’s LLMs are also areas of concern. Despite significant investments, many of these models have not reached the “state of the art” performance level seen in other parts of the world. The lack of rigorous testing and benchmarking, coupled with a still- maturing infrastructure for model development and deployment, poses challenges to realizing the full potential of GenAI in China.
Lastly, the gap in specialized AI talent, particularly in enterprise settings, remains a critical challenge. While China has a sizeable pool of AI developers, there is a need for more specialized expertise to drive innovation and research in GenAI. And the talent gap will continue to widen: According to McKinsey estimates, demand for individuals skilled in building AI products in China will outpace supply by a factor of three to one by 2030.
Chinese consumer brands go global
Historically, very few Chinese brands managed to establish a widespread global presence or recognition, and have traditionally been seen as producers of non-branded products or contract manufacturers for Western brands. This image is gradually changing as a crop of new companies demonstrate innovation, competitive pricing, and global ambition, shifting perceptions and positioning Chinese companies as viable contenders on the world stage.
Major appliance companies including Midea and Haier have been at the forefront of this development. Midea’s U-shaped Inverter Window Air Conditioner reflects the company’s strategy of localizing its product offerings to meet the
unique needs of specific markets, in this case, the US market. A distinctive feature of the unit is its U-shaped design, which allows the window to be opened and closed even when the unit is installed, which is a significant improvement over traditional window units. This can typically be done by the consumer themselves, with no need for special tools or professional help.
Haier pursued a strategy of localization. Instead of simply exporting products designed for Chinese consumers, it tailored its products to the specific needs of local markets. This included setting up local production and research facilities in key markets. For instance, in the US, Haier produced compact refrigerators and wine coolers. Their approach has made it one of the world’s leading appliance brands today.
In the electric vehicle (EV) sector, BYD stands out as an example of Chinese innovation and global ambition. Transitioning from battery manufacturing to producing electric cars, buses, and trucks, BYD has become one of the world’s largest EV manufacturers. Its commitment to R&D and international expansion efforts have allowed it to make inroads into markets in Europe, Latin America, and beyond, challenging established automotive brands.
NIO, a leading Chinese electric vehicle (EV) manufacturer, has pioneered the Battery as a Service (BaaS) model in China, providing EVs with swappable batteries that customers can lease instead of purchase outright. By decoupling the battery cost from the vehicle, NIO can offer its EVs at a lower upfront cost, attracting more customers to its brand.
NIO is working to replicate this model in Europe, where it is building a comprehensive battery swap station network across the continent. With the BaaS model, European customers can enjoy lower initial EV costs and an easily swappable battery.
More recently, ecommerce technology platforms like SHEIN and Temu have leveraged data analytics and supply chain efficiencies to offer a vast array of affordable fashion items. Their success is underpinned by agile business models that allow them to respond rapidly to ever-changing fashion trends and consumer demands, making them formidable competitors to established Western brands.
This trend of Chinese brands emerging as global contenders is likely to accelerate in 2024 and beyond, driven by Chinese companies’ focus on innovation and global expansion.
The year 2024 stands as a pivotal moment for China, marked by the Year of the Dragon, symbolizing a period of transformation across various sectors.
The nation’s strides in biopharmaceuticals and generative AI highlight its growing influence and innovation on the global stage, while advancements in agriculture and the burgeoning presence of Chinese consumer brands worldwide underscore a strategic shift towards greater global integration and influence. Furthermore, the diverging fortunes of multinational corporations reflect the complex, dynamic nature of China’s economic landscape.
As China embraces the auspicious spirit of the dragon, it is poised to not only drive significant change within its own borders but also to make a substantial impact on the global economic and technological landscape.