China's transformation from a planned to a market economy is beyond the point of no return. Since reforms began in 1978, the state's share of China's economic activity has dropped from 80 percent to less than 30 percent in 2000, and its GDP per capita has quadrupled. As a result, an entire generation has been raised to expect increases in its standard of living and a better life for its children.
To deliver on its commitments and its people's expectations, China needs over $400 billion in investment each year. Without continued corporate, labor, and capital market reforms, the needed investment will dry up. China's reforms will continue – the stakes are too high for it to slow down or turn back.
Factors for success
Across the board, in markets that are progressively less regulated, well-run businesses will prosper. The resulting competitive intensity means that successful multinational companies must have a deep understanding of China's market dynamics, an innovative strategy, a capable organization, and leadership on-the-ground in China. Testing the waters with remote office experiments is now, more than ever, a waste of money.
Yet the opportunities in each sector vary with demand growth, local competitive pressure, and new investment. For both Chinese and multinational businesses that face consumers with greater spending power and more choices than ever before – such as in the consumer electronics, retail, and financial services sectors – products and formats must be continually updated as margin pressures mount.
In capital-intensive Chinese industries such as steel, automotive, and energy, a still-fragmented supply base makes consolidation the first step, with a new customer focus and global alliances still needed for sustainable profitability.
Finding the rewards
The winners of this game are starting to reap their rewards. Multi-national and Chinese manufacturers are using China as a low-cost platform for global production. Chinese-based manufacturers are increasingly setting the global price and quality standards for both commodity and value-added goods. And profits from the China market are reshaping the global strategies of many a multinational.
Longer term, China's overall GDP is tipped to move past the U.S. in 2040. As with the U.S. in its post-war boom years, a company that succeeds here will succeed anywhere.
