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How Enterprises Navigate Global Transformation

Jan 27-2026   



*This article is adapted from a piece by Zhou Qiren, a senior professor at Peking University's Bo Ya Institute and a professor at the National School of Development.

The Emergence of Transformation

Overall, China entered the global market quickly, leveraging its cost advantage. Here, "cost" refers not merely to narrowly defined factor prices, but to a comprehensive cost advantage achieved through the effective organisation of various factors and the establishment of efficient operational mechanisms. Since around 2008, China's economic and social development has entered a new phase. Institutional costs have risen and factor prices have shown an upward trend, with these two elements becoming increasingly intertwined.

Massive goods exports caused China's foreign exchange reserves to grow rapidly—a significant achievement of reform, opening up and deep integration into the global division of labour. However, as this process reached a certain scale, new challenges emerged. At the same time, imbalances were accumulating on the other side of the global economy. The United States faced a trade deficit of over $1.2 trillion, indicating substantial imports of foreign goods into the US market and the loss of domestic employment opportunities to overseas markets. As public debt continued to increase, achieving balance became more challenging. Since 2017, international economic friction has gradually intensified, manifesting itself in the form of trade disputes and technological restrictions. This global imbalance has further complicated economic relations among major economies.

Challenges Facing Chinese Enterprises

The current global competitive landscape can be described as a "sandwich". The top "bread" layer consists of developed nations that have a competitive advantage based on innovation and offer high-priced products and services. The bottom "bread" layer comprises newly opened economies. Many countries in Southeast Asia, the Middle East and Africa are embracing greater openness, leveraging their low production costs and abundant labour resources to participate actively in the global industrial supply chain. Amidst this landscape, China finds itself at a new developmental juncture. While its innovation and creativity capabilities are advancing rapidly, a significant gap remains compared to the world's top innovation hubs. On the other hand, sustained economic growth and substantial improvements in living standards have eroded China's once absolute advantage in comprehensive factor costs, which now exceed those of newly opened economies. China is in a "sandwich" position between the top and bottom layers, facing innovation pressure from developed nations and cost competition from newly opened economies. This creates an urgent need to break through this dilemma.

Furthermore, as a late-developing nation, China has consistently maintained strong momentum in industrial development throughout its catch-up process. While this has been a key driver of China's rapid economic growth, it has also created a structural issue: in the long term, China's catch-up strategy has resulted in an imbalance where the production side is strong while the market side remains relatively weak. This is compounded by low information transmission costs and rapid market feedback; once a product gains attention, nationwide production surges often lead to cutthroat competition and overcapacity.

Three Pathways to Navigate the Transformation

First: lean management. Historically, widespread inefficiency and waste in China's industrial sector went largely unnoticed, hidden behind rapid economic growth. However, some enterprises later proactively adopted lean management principles to streamline their operations. "Lean" signifies more than just downsizing; it also involves enhancing quality. Through lean improvements, enterprises can substantially reduce costs, significantly lower defect rates, effectively decrease inventory, and simplify management complexity.

Second: strategic global expansion. Many enterprises have now embarked on global expansion, a process known as "going overseas". However, among China's top 500 enterprises, few have achieved export ratios of over 40%, particularly state-owned enterprises, whose core operations remain focused on the domestic market with limited international engagement. In 2024, Midea's overseas sales accounted for 41% of its total revenue, with a quarter of its overseas production sold abroad. The underlying principle is clear: if we want others to buy our products, we must first help them to make money. Manufacturing relocation overseas serves precisely this purpose, enabling others to profit. Today, China has the capability to export technology, equipment and manufacturing expertise around the world. However, the larger the domestic market becomes, the greater the challenges of further expansion. Sometimes, when a company faces immense challenges developing domestically, venturing abroad can offer a much smoother path forward.

Third: innovative uniqueness. Late-developing nations typically select products that are in high demand internationally, leverage their own manufacturing cost advantages, and use the finished goods to meet domestic needs, thereby achieving import substitution. This is the path that all late-developing nations have taken. The path itself is not wrong, but it becomes more limited with each step. After over 40 years of growth, we still need to cultivate our innovative uniqueness. The "uniqueness" required for high-end competition is not self-declared by enterprises. What matters more is the problems it solves for others and whether customers are willing to pay for its value.


How Enterprises Navigate Global Transformation

Jan 27-2026   



*This article is adapted from a piece by Zhou Qiren, a senior professor at Peking University's Bo Ya Institute and a professor at the National School of Development.

The Emergence of Transformation

Overall, China entered the global market quickly, leveraging its cost advantage. Here, "cost" refers not merely to narrowly defined factor prices, but to a comprehensive cost advantage achieved through the effective organisation of various factors and the establishment of efficient operational mechanisms. Since around 2008, China's economic and social development has entered a new phase. Institutional costs have risen and factor prices have shown an upward trend, with these two elements becoming increasingly intertwined.

Massive goods exports caused China's foreign exchange reserves to grow rapidly—a significant achievement of reform, opening up and deep integration into the global division of labour. However, as this process reached a certain scale, new challenges emerged. At the same time, imbalances were accumulating on the other side of the global economy. The United States faced a trade deficit of over $1.2 trillion, indicating substantial imports of foreign goods into the US market and the loss of domestic employment opportunities to overseas markets. As public debt continued to increase, achieving balance became more challenging. Since 2017, international economic friction has gradually intensified, manifesting itself in the form of trade disputes and technological restrictions. This global imbalance has further complicated economic relations among major economies.

Challenges Facing Chinese Enterprises

The current global competitive landscape can be described as a "sandwich". The top "bread" layer consists of developed nations that have a competitive advantage based on innovation and offer high-priced products and services. The bottom "bread" layer comprises newly opened economies. Many countries in Southeast Asia, the Middle East and Africa are embracing greater openness, leveraging their low production costs and abundant labour resources to participate actively in the global industrial supply chain. Amidst this landscape, China finds itself at a new developmental juncture. While its innovation and creativity capabilities are advancing rapidly, a significant gap remains compared to the world's top innovation hubs. On the other hand, sustained economic growth and substantial improvements in living standards have eroded China's once absolute advantage in comprehensive factor costs, which now exceed those of newly opened economies. China is in a "sandwich" position between the top and bottom layers, facing innovation pressure from developed nations and cost competition from newly opened economies. This creates an urgent need to break through this dilemma.

Furthermore, as a late-developing nation, China has consistently maintained strong momentum in industrial development throughout its catch-up process. While this has been a key driver of China's rapid economic growth, it has also created a structural issue: in the long term, China's catch-up strategy has resulted in an imbalance where the production side is strong while the market side remains relatively weak. This is compounded by low information transmission costs and rapid market feedback; once a product gains attention, nationwide production surges often lead to cutthroat competition and overcapacity.

Three Pathways to Navigate the Transformation

First: lean management. Historically, widespread inefficiency and waste in China's industrial sector went largely unnoticed, hidden behind rapid economic growth. However, some enterprises later proactively adopted lean management principles to streamline their operations. "Lean" signifies more than just downsizing; it also involves enhancing quality. Through lean improvements, enterprises can substantially reduce costs, significantly lower defect rates, effectively decrease inventory, and simplify management complexity.

Second: strategic global expansion. Many enterprises have now embarked on global expansion, a process known as "going overseas". However, among China's top 500 enterprises, few have achieved export ratios of over 40%, particularly state-owned enterprises, whose core operations remain focused on the domestic market with limited international engagement. In 2024, Midea's overseas sales accounted for 41% of its total revenue, with a quarter of its overseas production sold abroad. The underlying principle is clear: if we want others to buy our products, we must first help them to make money. Manufacturing relocation overseas serves precisely this purpose, enabling others to profit. Today, China has the capability to export technology, equipment and manufacturing expertise around the world. However, the larger the domestic market becomes, the greater the challenges of further expansion. Sometimes, when a company faces immense challenges developing domestically, venturing abroad can offer a much smoother path forward.

Third: innovative uniqueness. Late-developing nations typically select products that are in high demand internationally, leverage their own manufacturing cost advantages, and use the finished goods to meet domestic needs, thereby achieving import substitution. This is the path that all late-developing nations have taken. The path itself is not wrong, but it becomes more limited with each step. After over 40 years of growth, we still need to cultivate our innovative uniqueness. The "uniqueness" required for high-end competition is not self-declared by enterprises. What matters more is the problems it solves for others and whether customers are willing to pay for its value.