McKinsey’s Contrarian China View: What It Means for Business

Hello from Beijing — Evelyn here. In this edition of The China Connection, I’m taking a closer look at what local companies are saying, how the market is shifting and why global businesses are reassessing their China strategies.

With a growing number of Chinese firms expanding overseas, foreign companies are asking a harder question: Is China still worth the commitment? One major consulting firm argues that it is — and its reasoning challenges much of today’s conventional wisdom.

China is neither on track for a Japan-like era of prolonged stagnation nor moving toward a sweeping break with the United States, McKinsey’s Nick Leung and Joe Ngai argue in their new book, “The Next China Is Still China: An Insider’s Playbook for Winning in the New Era.”

Their outlook offers a markedly different lens from the prevailing narrative, which has focused on weak Chinese consumer demand, an extended property-sector downturn and the steady push by companies to diversify supply chains away from China.

At the center of their case is China’s enduring strength in global manufacturing, along with its heavy investment aimed at narrowing the gap in cutting-edge technologies. For many U.S. and European companies, however, the old era of easy advantage in China appears to be over.

Ngai, a senior partner and chairman of McKinsey’s Greater China offices, told me last week that multinational companies must understand the source of their current frustration: for roughly two decades, many enjoyed unusually strong market-share positions in China — in some cases even greater than what they achieved in other international markets.

Local Chinese rivals are also often disappointed, he said, pointing to hyper-competition, or involution, in the slowing economy.

Winning longer term, Ngai said, requires investing in China to stay relevant in a giant consumer market — and consequently competitive in other countries where Chinese companies are expanding.

AI-powered educational products is one area. Lingverse COO Anita Wang told me the company plans to officially launch its owl-themed reading companion in the U.S. this fall. She said the team is also speaking with some Florida school districts to use its AI-powered learning device during field trips and other activities.

Chinese companies also face significant challenges despite rapid global growth. Beverage and budget drinks chain Mixue has quickly opened four times the number of stores as Dunkin Donuts. But shares tumbled last week after cost of sales grew faster than revenue, for a 14.7% profit drop in the first half of the year.

Since the pandemic, China’s retail sales have grown at less than half the pace seen in years prior. Starbucks has sold a majority stake in its local operations, while other U.S. giants have downsized amid geopolitical tensions.

Ngai said many foreign businesses are speaking with Chinese private equity firms about local partnerships, but right now there are “more discussions going on rather than deals being struck.”

Every industry is different, with areas like tech more sensitive than others and requiring their own guardrails. But McKinsey’s regional leaders write that the conclusion for many business executives — 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.

HP partners with U.S.-blacklisted Huawei for licensing the Chinese company’s WiFi tech

U.S.-based personal computing and printing firm HP has signed a multi-year global agreement for licensing certain WiFi patents from Chinese telecoms giant Huawei. The deal comes after a patent dispute involving the companies.

China’s super-rich fled Singapore. Now they want to come back

Family-office advisers and wealth managers say they are seeing renewed interest in Singapore from affluent Chinese clients who had shifted their lives to other financial centers, as tightening scrutiny from Beijing and geopolitical turmoil make its stability look attractive again.

Z.ai shares surge after releasing new AI model running only on Chinese chips

The company claimed it used 100,000 China-made chips to handle all online requests for GLM-5.3-Flash. Z.ai is likely using Huawei Ascend along with other chip suppliers, according to Counterpoint. AI rival DeepSeek has meanwhile turned to outside investors to fund its growing ambitions, while quant parent High-Flyer has secured allocations across some of China’s hottest hard-tech IPOs, from chips to robotics.