Chinese Enterprises Face Profound Changes In New Round Of ‘Going Global’ – Analysis

By He Jun

In recent years, with the reversal of globalization and the escalation of geopolitical tensions, there has been a strong emphasis within China to focus on “internal circulation as the mainstay” and the construction of a “unified national market” as a response to changing circumstances and environments. Amidst this policy shift, the efforts of Chinese enterprises to expand into international markets have been intentionally or unintentionally overlooked.

Researchers at ANBOUND have consistently advocated that faced with external restrictions, China should take the opposite approach and respond to international environments with greater openness.

The insistence of researchers at ANBOUND is not only based on the principles of reform and opening up but also because it involves the significant practical interests of Chinese enterprises. Over the decades of reform and opening up, especially since China’s accession to the WTO in 2001, a large number of Chinese enterprises have aligned with the world, becoming engines in the “world’s factory” by connecting to international markets one by one. Through diligence, resilience, low costs, and capacity, they have accumulated wealth, technology, and knowledge in the first half of industrialization, and built the industrial system of China as the “world’s factory”. The close relationship between Chinese enterprises and the global market does not immediately sever due to globalization reversal, which is the fundamental reason why the economic decoupling between the U.S. and China is difficult to achieve.

Not long ago, during an interview with the CBS program 60 Minutes, Nicholas Burns, the American Ambassador to China, made a few “frank remarks” about the U.S.-China relationship: (1) China is an “adversary” stronger than the Soviet Union was from the 1940s through the 1980s, and is a significant competitor of the U.S. Americans do not want to live in a world where the Chinese are the dominant country. (2) China is the third-largest trading partner of the U.S. Once U.S.-China “economic decoupling” occurs, it will affect 750,000 jobs in the U.S., with unimaginable consequences. Therefore, the two countries must coexist.

When the U.S., while emphasizing geopolitical competition, still recognizes the importance of China’s connection to the world economy, China itself should persist in the strategy of reform and opening up.

On the enterprise level, the basic logic of adhering to the “go global” strategy is quite simple: in the past, Chinese companies produced for the global market because the capacity of the country’s domestic market was limited. Despite its huge population of 1.4 billion, factors like consumer purchasing power, industrial structure, and demand in China caused the limitation. The production capacity of Chinese companies is then geared toward the global market. In addition, technology exchange, knowledge acquisition, and industrial upgrading also require Chinese companies to “go global”, which has become crucial for the survival and development of many of these companies. Researchers at ANBOUND have repeatedly learned in field surveys that the impact of recent years of deglobalization has severely constrained the development of some Chinese companies, forcing some of them with global production capacity to “shrink” into the domestic market to compete for survival as internal competition has become extremely intense.

Therefore, “going global” again is a significant requirement for Chinese enterprises, and helping them to do so has become an important task of the country’s central and local governments. We believe that for Chinese enterprises and the Chinese government, it is necessary to recognize that this new round of “going global” faces a significantly different situation from the past, with profound changes in the environment.

Firstly, the global situation and geopolitical landscape have significantly changed. It is crucial to recognize that in an era dominated by geopolitics, whether it be Chinese enterprises, relevant government departments, or intermediary service agencies, all need to increase their assessment of anti-globalization and geopolitical risks when deciding to “go global”. This also signifies that they need to enhance their geopolitical risk assessments.

Secondly, industrial migration will alter the classification of global production activities and the layout of industrial investments. ANBOUND’s founder Kung Chan has classified global production activities into four levels (Kung Chan, January 2024): (1) Primary production refers to the production and manufacturing of energy minerals and basic end products. (2) Secondary production refers to the imitative manufacturing of general products, such as high-speed rail and automobiles. (3) Advanced production refers to high-tech and creative manufacturing, such as lithography machines. (4) Systemic production refers to large-scale and extensive system-organized production and manufacturing, such as Starlink. Correspondingly, ANBOUND divides different regions of the world into four categories in the “World Production Map under Deglobalization”: primary production regions, secondary product manufacturing output regions, advanced production regions, and high-tech development and systemic output regions. For Chinese enterprises to “go global”, they need to have an essential understanding and analysis of production levels and market regions.

Thirdly, there have been significant changes in the industrial investment environment compared to the past. In an era of geopoliticalization, different regions of the world have significantly increased their emphasis on industrial security. Normal industrial competition in the past may now take on political undertones, with regions imposing stricter industrial protection measures than before. For example, the U.S. has been pushing to suppress China’s semiconductor industry, leading to a significant shift in the concept of chip industry security, with “national security” severely affecting related industrial investments. Another example is the electric vehicle industry, where the European Union is currently conducting subsidy investigations into Chinese electric car exports, which could become an important reason for the EU to restrict Chinese exports and investments in Europe in the future. Chinese enterprises also need to pay attention to the impact of supply chain restructuring outside of China and rejoin the global supply chain system through “going global”.

Fourthly, there is heightened attention to the significant changes occurring in the international market environment. The intensification of deglobalization and geopolitical competition has a noticeable impact on the economies and market demands of different regions. With the exacerbation of regional protectionism and increased rejection of extraterritorial products, regional markets are becoming more fragmented. The restructuring of supply chains has led to the transfer of some orders, thereby affecting upstream producers. The EISENWARENMESSE–International Hardware Fair. held in Cologne, Germany, in early March this year, highlighted profound changes in the European market. Nearly 1600 Chinese enterprises participated in the exhibition, only to find disappointing market expansion results. Many Chinese enterprises reported difficulty in finding new orders or customers. Offline exhibitions have turned into corporate social events for information exchange and maintaining relationships with existing customers. Some Chinese enterprises have also become alert to the apparent contraction of the European hardware market, possibly due to factors such as the impact of the war in Ukraine and economic downturns in EU countries.

Final analysis conclusion:

In the new era of intensified deglobalization and geopolitical competition, Chinese enterprises will need to adhere to the strategy of “going global” to access the world market and maintain sustainable development capabilities. At the same time, there should also be the realization that compared to the traditional globalization period of the past, the current and future world markets have undergone profound and systemic changes. The new wave of “going global” for Chinese enterprises needs to be based on objective assessments of geopolitical risks and an understanding of changes in the global market, so as to seize opportunities and avoid risks effectively.

He Jun is a researcher at ANBOUND