The first phase of the 135th canton fair closed with fruitful results. It serves as a timely backdrop to discuss China's openness to multinational companies and its pivotal role in global trade, particularly in advanced technology and AI. The fair, often regarded as China's "barometer" for foreign trade, showcases over one million new products and symbolizes China's unwavering commitment to progress.
Joe Ngai, Chairman of McKinsey & Company, Greater China, shared insightful perspectives on China's economic landscape and its impact on multinational corporations. “There's no 'next China' that isn't China; it has to be China,” Ngai highlighted China's indispensable role in driving global economic growth, noting that China's economy continues to be a crucial engine of global growth.
Reflecting on China's commitment to technological advancement, Ngai highlights the transformative potential of advanced technology and AI in reshaping global trade dynamics, adding that the Greater Bay Area has always been and will continue to excel as a crucial component of global trade.
According to Ngai, the Greater Bay Area leverages a combination of professional services, manufacturing, innovation, digital technologies, biotech, and health tech, positioning itself as fundamental pillars of Chinese growth for the foreseeable future.
Joe Ngai: I think the Greater Bay Area has always been a crucial component of global trade. I still remember 20 or 30 years ago when the ports in Hong Kong and Shenzhen as the major paths for goods from all around the world headed to the west.
Increasingly, I see that many high-tech manufacturers, particularly technology companies in Shenzhen, are not only involved in physical trade but also influence global trade through innovation and other means.
In the past, we mainly see physical goods produced in China for export. In the future, trade will expand to include technology, ideas, intellectual property, data, and other intangible aspects that will significantly impact global trade. Therefore, I believe the Greater Bay Area has consistently excelled in trade and will continue to do so in the future. However, the nature of trade is evolving from solely physical goods to encompass a broader range of intangible goods.
SFC Markets and Finance: The world economy is full of uncertainties. Do you still believe the next China is China?
Joe Ngai: If you look at China's economic growth last year and the current situation this year, China is still projected to account for 32% to 34% of global economic growth. Therefore, one thing we firmly believe is that in the next 10 years, no other region, country, or corporate entity can replace China's growth. As the International Monetary Fund (IMF) has said, Chinese growth is essentially the foundation of global growth. So when I said the next China is China—I firmly believe there's no substitute. Therefore, there's no 'next China' that isn't China; it has to be China. Of course, we also need to find ways to achieve more sustainable growth in the future.
SFC Markets and Finance: For companies, should they continue to invest in China? What opportunities does the Chinese market present for them, and how can they succeed in the next China?
Joe Ngai: I've recently been in discussions with many CEOs, and I think that a lot of them are seriously considering how to invest to shape the next era for their companies. I do feel that the current landscape is quite different. In the past, company growth was more about scale, focusing on expanding into lower-tier city markets and increasing overall size. However, looking ahead to the next decade, it’s going to be more about granular growth. You’ll find growth in very specific pockets. It's no longer a one-size-fits-all approach, where you have a product, do a lot of marketing, and everyone comes to your platform. I don't believe this model will continue to work.
I see the future as more granular, specific, and segmented. For companies that believe they have the technology and strategic vision to adapt to these changes, they continue to invest because they see significant growth potential. I still see many entrepreneurs tapping into substantial growth momentum in the market, although it is a slowing growth.
SFC Markets and Finance: For your clients, what are their biggest concerns when investing in China?
Joe Ngai: I believe their primary concern is competition. China is unique in the world market with its intense and fast-paced competition. Products that are popular in China can face numerous competitors within a very short time frame—sometimes within just three days. This level of fierce competition and rapid market response is unprecedented compared to other regions.
Many CEOs of multinational corporations have told me that they have never seen anything like this, in terms of the pace, price competition and so on. Therefore, what worries CEOs the most is whether it is over competition. Oversupply can harm their profitability. When price comes down, the entire industry doesn’t make profit. I think that’s what people worry about.
SFC Markets and Finance: You mentioned competition. Given all this competition and uncertainty, how do you think Chinese companies have been performing in recent years?
Joe Ngai: Chinese companies have done relatively well, especially in terms of global competition. When we consider the areas where Chinese companies do well at, such as manufacturing, industrial production, and exporting, I believe the Chinese companies that are currently performing well are globally leading in terms of efficiency, supply chain management, cost control, and overall value.
Obviously, there is still much more to do. One thing I often emphasize is the use of technology. In the past, I think Chinese companies have been very adept at using technology to reach customers, given China's high level of digitization. Many customers engage through mobile apps and other digital platforms. In the next 10 years, we can leverage technology even more to reduce costs, increase efficiency, and enhance overall productivity.
I believe Chinese companies still have significant potential for further improvement. However, the leading Chinese companies are already setting global standards.
SFC Markets and Finance: We saw more Chinese companies going overseas. What are the key factors for their success overseas? Any suggestions for these companies?
Joe Ngai: I think Chinese companies have a lot of potential overseas. They excel in product innovation cycles, value for money, supply chain, and manufacturing, creating really good products at competitive prices. Therefore, these advantages should extend well into overseas markets.
However, the challenge arises when you go overseas because the customer segments there are not exactly the same as those here in China. What works well in China may not be as attractive overseas.
The second challenge is talent. Chinese companies are in the early stages of embracing global talent. One important thing to consider is how we can attract top global talent to work for Chinese companies. That's one way we really need to think a lot about it.
The third challenge involves local regulations, stakeholder management, and understanding local customs and culture. There's still much to learn in these areas.
In the past, China was known as the 'world's factory,' but we weren't truly global companies. Looking ahead to the next 10 years, I anticipate the emergence of multinational companies from China, which would be something to be very proud of. I look forward to these companies.
SFC Markets and Finance: For multinational companies already operating in China and those looking to enter the Chinese market, what suggestions do you have? How has the business environment in China and Shanghai evolved over the years?
Joe Ngai: I think China has been a wonderful growth market for multinationals over the past 20 years. When I attended the China Development Forum last month, many CEOs mentioned having been in China for 20, 30, 50 years, with a significant portion of their global revenues coming from China.
Looking ahead, I think all multinational companies will need to consider how they can compete in the next decade. Some have achieved growth and market penetration in the past, but the challenge now is how to sustain that growth and find their position in a market where local competitors are rapidly evolving and becoming very competitive.
I believe it will be a more challenging market for multinational companies, but I am confident that those with a focused strategy, the right talent, and a deep understanding of the Chinese market will continue to thrive.
I think there's no other market that can match the potential of the Chinese market. However, some companies may find the reality more difficult, and not all companies will perform equally well in any economy. There will be winners and losers. The key is how we enhance our opportunity in the chances to be in the winners’ category.
SFC Markets and Finance: How do you think of China's economy this year or going forward? What's your perspective?
Joe Ngai: 2024, we're now in April. I think it will be a year, a little bit like last year. I think that we are in a kind of medium growth. We're still getting used to the supply and demand in many industries. I think people are getting used to the medium kind of growth rate we have right now. But I do see some promising signs though.
When I look at consumers, I do think that consumer confidence is at a low level but is no longer dropping. I think that there is plateauing, and I think that there are signs where this can recover. If I look at some of the industrial outputs, I see some promising signs.
But I do think that there are still some short-term challenges that we need to overcome. We need to overcome some of the real estate problems that we have. We have some local governments financing platforms of vehicles that also need to figure out how to get more cash flow. We do have in some industries where I think that the oversupply is a little bit of a situation that we need to get back in shape. There are some short-term challenges. I have confidence that there will be a medium growth for us and for those who are in the market. I think it will be a decent year.
SFC Markets and Finance: Accelerating the development of the new quality productive forces will be important for China's future development and economic growth. What's your understanding of this concept?
Joe Ngai: I think we are all trying to figure out not only how it plays in China's future, but also undeniably across the global.
If we consider high-tech manufacturing and industrial sectors, along with sustainability initiatives such as solar, wind, EVs, and batteries, these industries represent the future. They are, at the very least, critically important.
And every single country in the world is trying to figure out how to get more investments, how to get better at these areas. And China is actually quite ahead in some of these aspects. When you think about sustainability initiatives like wind, solar, and others, we have reached a scale that leads globally, especially in batteries and new electric vehicles.
The new quality productive forces, it's just part of the economy that's very important. As we go towards more higher quality, and our salaries and the average income are rising, I think we need to get into more high-value add side of the production cycle. And I think that these segments are the segments that we want to be good at. That is something where we are well on our way. But I think that right now is seriously a highlight every government is trying to think about that as well.
SFC Markets and Finance: The Guangdong-Hong Kong-Macao Greater Bay Area (GBA) is perhaps one of the most vibrant and innovative regions in China. How do you think this area plays a role in China's development?
Joe Ngai: I think the Greater Bay Area is critical to China's development. If you think about all the technology that's coming out from the south. In the past, it has been manufacturing. I think in recent years, there's the innovation and digital and all these technologies. Now some of our biggest internet companies, some of the biggest auto manufacturers, some of our biggest of software companies are in the south. I think that's just a huge productive force for China.
We are playing in the market, where it can be from the Greater Bay, it can be from the Yangtze Delta, it can be from the north. But at the end of the day, I think it's a competitive world.
Having lived in Hong Kong for many years and working in Shenzhen, I see Shenzhen as the anchor point of this story. Many cities around the Greater Bay Area have been at the forefront of innovation for years. Looking ahead, this will undoubtedly play a crucial role.
I'll emphasize another point, particularly around Hong Kong and its international aspect. I believe Hong Kong serves as an international financial center for China, offering professional services that are also quite powerful. The Greater Bay Area can leverage these opportunities. If you consider all the elements we need—professional services, manufacturing, innovation, digital technologies, biotech, health tech—they're all present there. This economy and its power are certainly fundamental pillars of Chinese growth for the next decade and beyond.
SFC Markets and Finance: How do you think of the entrepreneurial spirit in the Great Bay Area?
Joe Ngai: It has always been very strong. I think the south has always been a very strong entrepreneurial spirit. I grew up in Hong Kong, spent a lot of time in Guangzhou and Shenzhen. I feel like it has been a culture of entrepreneurs.
Over there, there were no big companies to give us jobs. Everyone has to go and innovate and make your own living and find your way to innovate. And if I think about the last 10, 20 years, I do think that the Greater Bay Area itself has actually been a very important part of that equation. And I think it continues to be.
So I think that the great thing about both the Chinese economy but also the Greater Bay Area is that each region has their own value and culture or some customs, and some of the human spirit that is slightly different, but they are all adding to the bigger picture.
I think the entrepreneur spirit in the south and in the Greater Bay Area is a fundamental hallmark spirit in these people. And I think that remains. I hope that remains strong, because I think the entrepreneur spirit is part of what will carry China into the next decade to be strong.
SFC Markets and Finance: I learned that you started your own business when you first graduated from college. You have also talk to many CEOs often. What do you think makes a good business leader?
Joe Ngai: This is a very good question. I would like to share two points on this. Firstly, I believe a business leader have to look ahead. Many people are very good at doing what they do today, but much fewer people are good at looking ahead, or what I sometimes call 'looking around the corner.' The better you are as a leader, the more adept you become at foreseeing what's coming. Your ability to influence other people to come with you together, and say ‘Trust me, it's around the corner, but we got to change because it's coming,’ I think that is very important. I think the difference between a leader and someone who is executive is the ability to see beyond and to see around.
Secondly, I believe leaders need to maintain a positive attitude. There are many reasons in today's world that can make one feel negative or overwhelmed, but the best leaders are those who understand what they can influence and work hard to create conditions for success. This positivity and can-do spirit are also fundamental part of what makes great leaders great.
SFC Markets and Finance: How do you think businesses, particularly multinational corporations, can better adapt to today's environment?
Joe Ngai: I think we must accept uncertainty as inevitable. The more we embrace this reality and adjust our mindset accordingly, the better off we will be. In the last one or two years, we've been talking about a concept called the resilient company. What's resilient? Resilient means that when there's a typhoon, when there's a storm, when there's a flood, when there's an earthquake, I can get through it.
In the last few years, we have seen COVID; we have seen different lockdowns; we have seen different geopolitics going on. I think companies have to figure out how to respond quickly, how to be more agile, how to think about the difference between long term and short term, how to balance that, and how to be more equipped to deal with uncertainty.
The agility muscle, the resilience muscle, is one where the more we exercise that, the better the companies can deal with all these that we talked about. So, for multinationals and for Chinese companies, learning how to build up our resilience, it's probably one of the major lessons we've learned for the last couple of years, and likely will be the differentiation between who can get through the next storm and who cannot.
SFC Markets and Finance: What role do you think AI will play in business transformation, especially in multinational corporations?
Joe Ngai: I believe AI is already a significant topic for everyone, especially with the emergence of Generative AI (Gen AI). Over the past decade, we have witnessed the transition from an analog to a digital economy, and now we are entering the data and Gen AI economy. These technologies will reshape businesses and consumer behaviors.
I do think that there will be a greater divide of companies. Those who can really embrace new technologies like Gen AI, and those who cannot. And that group will become a lot more successful in the future. So I do think that all of us need to get better at these and know how to use it. Not everyone can become the fundamental building block of Gen AI, but all of us can figure out how to use it and make ourselves better. And I think that's a spirit of agility, learning, and innovation. That, to be honest, have always worked. But I think that in this digital world, it will accelerate this development.
I'm definitely supportive of trying to figure out how to incorporate AI and Gen AI into how companies can work and how individuals can work. I do think that there's so much there that can take away some of the things that we don't want to do in our work. I think Gen AI and AI can help us with a lot of that part. And if that part is taken care of, I can enjoy my work and my life a lot better.
Of course, we have to think about the downside or the negative aspects of this. AI also needs to be a technology that we need to have right regulations for, that we have to have the right societal awareness about. Because it may also lead to some bad behavior, or it might lead to some areas that would be counterproductive to what we do.
But in every single technology, there is an upside, and there's always a little bit what we need to regulate and prevent and help. But I think we should always do that. We should be very aggressive and very ahead of the curve in dealing with that. But we cannot stop technology from getting ahead because that's what makes us have a better life. And that's what I think would be right now.
SFC Markets and Finance: What role do you think China will play in the regulation and promotion of AI in the future?
Joe Ngai: I think China is placing a very high emphasis on how we regulate and think about AI. China is at the forefront of thinking about this. But in many aspects, I believe technology always runs ahead of regulation. Therefore, we need to keep up with the thinking, otherwise, we will fall behind.
Every government around the world is trying to find ways to make AI a safer and better technology for all of us. I think China is definitely at the leading edge of this thinking. Therefore, I hope other countries can learn from China's approach to regulating AI. Globally, I think Gen AI can usher in another era of prosperity, and hopefully, it will also make the world a better place.
SFC Markets and Finance: We talked about a lot of positive aspects. What will be the key challenges lying ahead? Moving forward, how can we overcome those challenges?
Joe Ngai: I think the key for us is to keep learning. In this uncertain world, many things can be scary because we don't understand them. Many things can be frustrating because they're not the same as before. I think we need to remain humble, keep learning, and keep adapting. These are difficult qualities that call for people to do more than they think they should. As leaders of companies, you have to inspire a lot of people to change and learn, which is not easy. But I'm hopeful that from the many experiences in China, we are very adaptive and resilient. In this ever-changing world, we have many favorable conditions that should allow us to be successful, but it's always challenging.
