Adapting to China’s Changing Business Climate

With the Chinese economy experiencing unprecedented challenges in recent years, the appointment of President Xi Jinping raises hopes that its export-led economy may be transformed to one where domestic demand is an engine for expansion, innovation is encouraged, and current economic difficulties are left behind.

But even without such transformation no truly global business can ignore China as a business partner and a vital growth market. Developing strategies to adapt to China’s new economic realities and leadership capabilities to create sustainable success in China is a priority for both foreign and Chinese companies.

New research from CEIBS (China European International Business School) reveals how Chinese and foreign companies are actively adapting to China’s new business environment. The CEIBS Business in China Survey is an annual survey of executives working in China for both Chinese and foreign-owned companies. The latest survey, led by Professors Juan Antonio Fernandez, Xu Bin and Zhou Dongsheng, was completed by 1214 executives, with 768 from Chinese companies and 446 from foreign companies.

The challenges faced by these executives exemplify how China’s business climate has been changing. According to the survey, the top three external challenges are rising labour costs, increasing competition, and the slowing of the Chinese economy.

Rising labour costs have been ranked high in all three recent surveys, which is a key characteristic of China’s new business environment. Another key characteristic is intensifying competition in China, especially from Chinese private companies. 50% of Chinese companies surveyed also sited ‘corporate governance’ as a barrier to their future success.

However when asked what are the most important factors for their companies to be successful in China, the top answer was quality of products and services. Consequently the survey shows that in order to achieve higher quality of products and services, many companies plan to increase their investment in R&D and innovation.

Despite the recent slump UBS still forecasts that the Chinese economy will grow by a world-beating 7.8 per cent this year. And, even if the World Bank’s warning that without reform annual growth could sink to 5 per cent by 2015 comes true, China will remain an economic dynamo and a magnet for global business. Adapting to the economic realities of the Chinese economy is critical to the health of all truly global businesses and to the world economy.

Download CEIBS China Business Survey 2013

Watch video of Professor Juan A. Fernandez discussing survey findings