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Rethinking China in the Year of the Rabbit

Rethinking China in the Year of the Rabbit

So, the Chinese New Year holidays are over. People across China are back at work and visits are once again possible for western firms, most of which haven’t travelled here since the start of the pandemic.

As we kick off the Year of the Rabbit, many are eyeing the considerable opportunities in the Chinese market. But while this is exciting, today’s China is a very different beast from three years ago. And western companies looking to (re)engage would be wise to think carefully about their approach.

Goodbye, dynamic zero COVID – hello, China travel

As a result of the Chinese government’s draconian ‘dynamic zero COVID’ policies, visits to Chinese customers, distributors, suppliers and business partners haven’t been an option for most western companies since early 2020. And those who did come were subjected to lengthy quarantine stints in designated hotels as well as hefty flight prices.

But China abandoned this approach virtually overnight in December, following severe economic pressures and growing public discontent. Borders have reopened and several of our clients have already secured business visas to visit soon.

That said, it would be overly optimistic to say travel to China is back to normal. The number of inter-continental flights is still a fraction of pre-COVID levels, meaning getting to China tends to take longer – via indirect routes - and costs more. And securing an entry visa can still be a hassle.

New year, new beginning

To say the past three years have been tough for many Chinese businesses would be an understatement.

Most have suffered from lockdowns, staff shortages, supply chain issues, disruption to international logistics and dampened consumer appetites – all without the level of support businesses in the west received from their governments.

And, in some sectors, firms have been caught up in geopolitical tussles – most notably the silicon chip war.

But in spite of all these difficulties, people across the country have come back to work from the New Year holidays with a renewed sense of energy and determination.

While COVID is still a serious issue, it’s rapidly becoming a part of life – just like in most other countries.


Businesses are simply getting on with it, meeting face-to-face and travelling across the country again. Corporate events are being planned without cumbersome restrictions. And Chinese executives are venturing overseas once again to attend trade shows and meet customers and partners.

Chinese companies are keen to put the challenging COVID era behind them, look forward and get back down to business. And many have set ambitious goals.

For example, NIO, a leading Chinese electric vehicle (EV) producer, has announced plans to launch five new models in 2023. And Geely-owned ZEEKR, another young Chinese EV brand, has said it will double its sales this year by launching two new models and entering the European market.

For these firms and many others in China, achieving these lofty goals means re-engaging with the west.

Too important to ignore

And just as Chinese firms will need to look to the west for growth, western companies are looking to China. For many, it’s simply too important a market to ignore.

The size of its domestic market dwarfs those of most western countries, as does its manufacturing sector, which makes it essential to the supply strategies of so many companies.

For example, in 2022, China represented around 40% of Volkswagen’s global sales. And in the lithium-ion battery space, the country accounted for 70-80% of global production, making it a focal point for western battery-related tech suppliers with global ambitions.

Other key industries that are actively opening up in China include healthcare, life sciences and renewables.

Meanwhile, on the production side, there have been many headlines about western firms ‘reshoring’ their China operations to their home country or moving them to other countries in Asia.

But while this is happening – and accelerating to some degree – it’s been going on for years as the natural consequence of the country’s shift into higher-value manufacturing.

And, when it comes to advanced manufacturing, China is often unrivalled. This is because it has a mature ecosystem of upstream suppliers, often concentrated in clusters, providing efficiencies in production, scale and logistics, and a highly-skilled labour force, the likes of which is absent in neighbouring countries.

As a result, many western firms have not just maintained their operations in China, but are doubling down on their investments in the country.

In September, German chemicals giant BASF inaugurated the first phase of its Zhanjiang plant as part of a commitment to invest €10 billion in China by 2030. In December, Thermofisher opened a new facility in Hangzhou, expanding its integrated biologics and drug development capabilities. And last month, Japanese electronics giant Panasonic announced $375 million of investment to expand its China production.

A very different beast

Despite these positive signs, however – not least the reopening of borders – the China you’ll visit in 2023 will look very different to the China of three years ago.

Over that time, the Chinese government has reinforced its push for self-reliance, driven by geopolitical tensions with the west, especially the US.


It has rolled out preferential ‘buy local’ policies across various industries and is pumping billions into strategic industries such as semiconductors, robotics, AI and quantum computing.

But while these policies are designed to boost the prospects of Chinese players, the government has also been stamping its authority on the country’s private sector.

Over the past couple of years, it’s cracked down on Chinese tech giants on the grounds of cybersecurity, anti-monopoly concerns and the excesses of capitalism. Most notably, it has strong armed various firms – including internet giants Alibaba and Tencent – to relinquish a level of equity and control to state-owned enterprises.

And while the crackdown has eased in recent months and the economy is now back on the priority list, the government’s drive to exercise greater control over key industries has not changed. For example, just last month, Beijing announced the launch of a state-owned ride hailing app – in a market until now dominated by Softbank-backed Didi Chuxing.

However, for most SMEs and so-called ‘responsible’ players, the impact of such moves has been limited. On the contrary, the government is actively pushing to create a strong Chinese ‘mittelstand’ - and these are typically the types of firms that are looking abroad for the best enabling technologies.

A smarter China strategy

Given the events and changes of the past three years, western firms in China now face a market with a higher level of state control, increasingly competitive domestic players and a significantly less predictable business environment.


As a result, many are re-assessing their China strategies and, while some have chosen to get out altogether – for example, by ‘friend-shoring’ their operations to other countries – most are choosing to ‘derisk’ rather than ‘decouple’.

Indeed, if you’re a western business seeking to expand in China in 2023, tailoring your strategy to take account of this ‘new normal’ is imperative.

Depending on your business, you should consider some or all the following:

  • Dipping your toe before taking the plunge – by thoroughly assessing the opportunities and challenges before committing to the market, whether directly or through in-country partners
  • Adopting flexible staffing options – by engaging in-country contractors or consultants to seed the market before establishing your own Chinese operation
  • Diversifying your target sectors – by expanding into secondary industries beyond your main focus to spread your risk
  • Adopting partnership models that offer more flexibility – by pursuing commercial arrangements such as licensing before committing to a joint venture or acquisition
  • Second-sourcing your supply chain – by establishing backup manufacturing options in Southeast Asia in case you have to exit China
  • Taking a ‘China-for-China’ approach – by offering a product or service that’s fully tailored to the Chinese market and concentrating all your operations within the market itself

Serious consideration

So, while the re-opening of China offers exciting opportunities for western businesses entering or expanding in the market, it’s essential to consider carefully how the landscape has changed and to develop the right strategy to succeed.

It may be the year of the bunny, which in Asian folklore heralds a period of lucky breaks. But get your approach wrong and you could well get a nasty bite!


To discuss how you can approach China this year, you can reach Alex at

See our other insights in our Rethinking China series

Alex Barton
About the Author

Alex Barton

Alex leads our Greater China and Southeast Asia operations, overseeing our teams on the ground which help our clients expand in these markets. Originally from the UK and raised in Belgium, Alex has lived and worked in China for more than 10 years and is a fluent Mandarin speaker. He has a BA in Chinese studies, an MA in international business and an MBA.

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