China Compass, Summer 2024

China’s new normal

Man in greenhouse
  • Newsletter
  • 10 minute read
  • 28 Jun 2024

While global travel restrictions, lockdowns, and turbulent geopolitics have caused some leaders to pause their engagement with China, European businesses have the potential to regain their position in China by adapting to China’s new normal.

China has undergone significant changes after the pandemic, which is referred to as “China’s new normal.” This new reality is driven by various factors that European companies must navigate to create momentum for their businesses in China. Approaching the Chinese market with an unchanged strategy and relying on pre-pandemic experiences that yielded results may be risky in the current landscape.

Here are some apparent changes that leaders should address:

Chinese goods are often cheaper and of better quality

Chinese goods are often cheaper and of better quality: In the past, foreign products were automatically perceived as superior in both B2B and B2C contexts. However, this is no longer the case. Local companies in China have become formidable competitors, matching foreign companies in terms of technology and overall quality. Some multinational leaders even admit that local competitors offer better quality in certain areas. Additionally, local companies are generally more competitive in terms of pricing, which is crucial in the current economic climate. This trend is evident in industries like automotive, where local brands have gained dominance within a few years. European companies should assess their competitive advantage and consider adjusting or innovating to compete against matured local companies.

A new type of customer

Consumer behavior, both in B2B and B2C contexts, has significantly changed. The current economy and general uncertainty influence the consumption patterns and preferences of individuals and companies. Moreover, the years of living with the consequences of the global pandemic have shaped Chinese consumers’ values, preferences, and hopes for the future. This fragmentation of consumers into micro-segments, or “tribes,” and the polarization of conflicting preferences and interests pose challenges for international companies. European companies can leverage available data and documented best practices to adapt to these changes and tap into the potential represented by evolving personal values and behaviors, such as an increased focus on life balance, self-realization, authenticity, mental well-being, sustainability, environment, climate, and health.

In China for China

Over the past several years, China has experienced growing nationalistic sentiment, partly due to geopolitical conflicts. This sentiment, along with strong self-confidence, influences how multinational companies (MNCs) navigate the Chinese market. It is essential for European companies to demonstrate their commitment to China beyond seeking quick profits. Consumers and authorities expect foreign companies to show dedication. At the same time, there has been renewed attention to creating better conditions for international companies investing in China. European companies that accept the need for their China operations and propositions to evolve and are willing to make new investments may find favorable opportunities in this environment.

These are just three elements that characterize China’s new normal. To gain a comprehensive understanding, it is advisable to explore further. Leading MNCs in China are already at the forefront of adapting to the new normal. While some European companies may have more favorable opportunities than others, it is crucial for all of them to know and understand China’s new normal to continue growing in the country.

Jacob Johansen is a Principal with Strategy& and head of the user-centricity practice in China.

Jacob Johansen

Jacob Johansen is a Principal with Strategy& and head of the user-centricity practice in China. He has been serving German and other European clients on the ground in China since 2003. He is the author of the book “From Customer to User” . His areas of expertise include business concept innovation, China consumer market insights and international brand strategy. He supports MNC initiatives xLoS at Strategy& China.

Tel: +1 5800761226

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