In a recent article published by the South China Morning Post, Joe Ngai, Chairman of McKinsey in China, highlighted several key trends that will influence the business environment in China in 2025. Below is an overview of some of these trends that are particularly relevant to our clients—international companies or foreign-owned companies operating in the Chinese market. Continue reading to discover these trends and how to prepare for them to optimize your operations in China.
Shift in the Global Trade Framework affecting China’s strategy
Geopolitical tensions and trade restrictions continue to shape China’s economic policy. In recent years, trade wars with the United States, the rise of “de-risking” policies in Western countries, and China’s efforts to reduce its dependence on global supply chains (due also to the war in Ukraine) have created new challenges. As a result, China is turning to alternative markets such as Southeast Asia, Latin America, and the Middle East to ensure trade stability and mitigate the impact of Western restrictions on its economy. Simultaneously, it invests in self-development of advanced technologies such as chips and industrial robotics.
Chinese exports are also changing in nature—China is now focusing on high-tech products, including electric vehicles, communication equipment, and smart robotics. The main target countries of this trend include Southeast Asia, the Middle East, and Latin America, where many governments promote Chinese investments to reduce their dependence on Western countries. Additionally, free trade agreements with countries like Indonesia, Brazil, and the United Arab Emirates provide China with direct access to new markets, reducing the impact of sanctions and trade restrictions from Western nations.
International companies or foreign-owned local companies need to prepare for ongoing changes in the international trade system and adjust their strategies accordingly. Our recommendation – Smart logistics management in China can certainly help businesses respond swiftly to changes, navigate regulatory complexities, and maintain high competitiveness.
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Intensifying Competition in the Domestic Market
The Chinese market remains highly competitive, with price wars across various sectors. Throughout 2025, it is recommended that international companies or foreign-owned Chinese companies maintain an optimal cost structure and create a unique value proposition to survive in the changing market conditions. One way to achieve this is through strategic partnerships and efficient, cost-effective HR management in China, ensuring compliance with local labor laws and optimizing workforce productivity; another solution is outsourcing operational activities.
Emphasis on Value for Money
Chinese consumers and procurement professionals are becoming more demanding, seeking higher value for their money. International companies are required to adapt their business models to address higher structural costs compared to local competitors. Our recommendation: adopt a flexible approach and strive to create real value for the customer. It’s important to align with new consumption trends in China, and it is advisable to use technological solutions to improve customer experience and reduce operational costs—all of which can help international companies or foreign-owned Chinese companies remain competitive.
That being said, it is important to note that any technological solutions should be adapted to the Chinese internet ecosystem and data protection laws. In this case, you cannot copy-paste practices from other markets, but should be taken into consideration in your strategic planning.
Advanced Commercialization of Artificial Intelligence
China’s investments in artificial intelligence are making it a global leader in technological innovation. The Chinese government promotes policies encouraging the use of AI in fields such as industry, transportation, medicine, and financial services. Among other things, AI developments are integrated into reducing production costs, optimizing supply chains, and enhancing customer experience. For example, China is a world leader in deploying autonomous robots in factories and using robots for warehouse and logistics management. Smart transportation, in the form of autonomous taxis and intelligent transportation solutions, is rapidly expanding in major cities like Beijing and Shanghai. Additionally, AI-based financial services, such as credit data analysis and fraud management, are becoming essential tools for companies operating in the Chinese market.
International companies offering AI solutions or relying on smart technology may find new opportunities to collaborate with local players. However, it’s also important to be aware of China’s strict regulations regarding data collection and privacy and to operate in accordance with existing legal guidelines.
Waves of Industrial Consolidation
China is experiencing an unprecedented wave of mergers and acquisitions, stemming from a combination of a saturated market, competitive pressure, and stricter regulation. In many sectors, including technology, finance, and industrial manufacturing, companies are facing shrinking profits, leading to the need to join forces or exit the market. The fintech industry, for example, has recently undergone dramatic changes with tightened regulation, causing some smaller players to merge or disappear. The electric vehicle industry in China is also experiencing a similar process, with numerous startups unable to cope with price wars, forcing them to close or be acquired by larger players.
At the same time, the government encourages consolidation processes as a way to strengthen economic stability. Chinese regulatory authorities promote policies supporting mergers between companies to create large, leading corporations in the market that can compete more effectively on the international stage. The goal is to reduce inefficient competition in saturated industries and prevent mass insolvencies.
In a market where small businesses are being absorbed by larger companies or forced out, it is advisable for international companies to explore collaboration opportunities, which may be critical for survival in this competitive market. International businesses operating in China should monitor changing regulations and consider partnering with strong local partners to gain better access to the market and local resources. Outsourcing non-core functions can be an important tool for maintaining flexibility and minimizing risks within a changing business environment.
Growth of Consumption in Lower-Tier Cities
Small and medium-sized cities in China are becoming new consumption hubs, with a significant increase in the real income of households and the expansion of the middle class. In these cities, housing and living costs are lower than in major cities, allowing consumers to allocate more of their income to the consumption of goods and services. This trend is also supported by government investments in infrastructure, improved access to public transportation, and the expansion of e-commerce, which provides access to a wide range of products and services.
International brands that previously focused on large cities like Beijing and Shanghai are beginning to target smaller markets, where there is high growth potential due to increased demand for quality and advanced brands. The entertainment, leisure, and financial services sectors are also experiencing increased demand, as more consumers in lower-tier cities seek new consumer experiences. International companies should develop targeted strategies for these regions, including adapting products and services to local needs and trends.
How to Prepare? Outsource Local Management Functions to a Reliable Provider
Outsourcing management and operational services is a critical strategic tool for success in the Chinese market. Beyond cost reduction and efficiency improvement, it provides international companies or foreign-owned Chinese companies with significant competitive advantages, especially in China’s dynamic and complex environment.
- Accelerating Growth – Enables companies to handle rapid expansion while maintaining a focus on core business operations, without the need to establish complex internal infrastructures.
- Maintaining Operational Flexibility – Businesses can selectively outsource functions according to changing market and regulatory needs. Outsourcing allows companies to swiftly adapt to economic, regulatory, or business shifts.
- Leveraging External Expertise – International companies cannot be experts in every field—outsourcing grants access to local experts with specialized knowledge and experience in human resources, finance, logistics, marketing, and operations management.
- Enhancing Service Quality and Customer Retention – Companies utilizing professional management services in China can provide better customer experiences, faster responses, and culturally tailored services, strengthening brand loyalty.
- Regulatory Compliance – Navigating China’s local legal requirements is complex. With experienced providers who are well-versed in the country’s evolving regulations, companies can more easily ensure compliance and avoid costly mistakes.
- Strategic Growth Focus – Delegating daily operational tasks frees up company teams to concentrate on product development, market expansion, and long-term strategic planning. Outsourcing enables companies to focus on sales, growth and business development while ensuring the efficient management of daily operations and long-term success in China’s competitive market.
We invite you to explore the new possibilities for de-risking your China operations with us.
For the past 25 years PTL Group has provided tailored management and operational solutions in the Chinese market, addressing the unique needs of international companies. Our services include HR management, Regulatory compliance, Financial and Operational support, as well as Marketing and Supply chain management solutions in China.
