2022 has been an unconventional year for the global automotive industry. Though impacted by events such as the Russo-Ukrainian War, chip shortage, the soaring lithium price, and the cool down of capital market in autonomous driving, China's auto industry still showed great resilience and vitality, with the ecosystem evolution still on track The continuously rising NEV sales, the increasing export volume, the emerging local smart technology, the constant exploration of Robotaxi and new aftermarket models were representative highlights of the industry in 2022. Last year, local brands' market share, NEV penetration rate, and the export volume of vehicles all set new records, marking important milestones in the development of the Chinese automotive industry. These results have confirmed Roland Berger automotive team's trend estimation at the beginning of 2022.
As we enter 2023, although the world is undergoing significant changes, China is weaving a new developing story with its' solid foundations and up-to-date competitiveness. Opening-up and win-win partnership will likely set the tone of economic growth in 2023, which will also give the auto industry another boost. As one of China's emerging sectors with strategic importance, the intelligent connected vehicles industry will further contribute to the high-quality, innovation-driven and low-carbon development of Chinese economy. We also expect that in 2023, the Chinese automotive industry will make breakthroughs of key technologies in the value chain and further strengthen its influence in the global supply chain network with the accelerating smart electrification trend and business model transformation.
Industrial Products & Services
In 2022, the resurgence of COVID and the uncertain global environment dealt a blow to China's manufacturing industry. Facing these waves of challenges, many Chinese manufacturing companies enhanced their management to overcome macro environment challenges. At the same time, more companies were exploring new opportunities and new long-term growth direction, which has effectively accelerated the transformation and upgrading of China's manufacturing industry. In 2023, we expect "transformation and upgrading" will continue to be the dominant tone of China's manufacturing industry development. In the meanwhile, the increasing implementation of digital intelligence will propel the transformation Chinese manufacturing companies. They will holistically enhance their competence in product, service, marketing and cost control to redefine the competitive landscape. We believe that a "Made-in-China with China quality" value chain will emerge in 2023, where major industrial manufacturing companies will join hands to benefit each other's growth and contribute a significant share of China's economy growth.
Chemicals & Materials
In 2023, as China's macroeconomy booster policies start to take effect, we expect chemical and materials industry to bottom out. Many companies of this industry will continue their domestic substitution strategy and start to explore overseas markets. Even though it's a traditional industry, companies are also innovating their brand building and marketing efforts to develop a new set of "soft powers" to complement their "hard technological competitiveness".
The volatile global energy market and China's pledge in pursuing its carbon peaking and carbon neutrality targets are deeply reshaping China's energy industry. Many energy companies are at a historical crossroads. The Report to the 20th National Congress of the Communist Party of China reiterated the importance of dominating its own energy supply. But at the same time, we also need to take into consideration of China's energy reserve structure and take a well-planned approach in implementing the carbon peaking and carbon neutrality policies during the transition. It is crucial for energy companies to align their pace with the national transition agenda to win in the future.
Transportation & Logistics
In 2023, China's transportation and logistics industry needs to grasp opportunities brought by the domestic economic recovery, because the international environment is still full of challenges, such as global geopolitical conflicts, the energy crisis in Europe and Sino-US tension. To leverage the macro trends, the industry must draft strategies to restructure supply chains, improve transportation networks, enhance state-owned enterprises' efficiency, redefine commercial trade and logistics, reintegrate ecosystems and further upgrade operational efficiencies. In terms of corporate development strategies, transportation and logistics companies need to build capabilities of digitalisation, green and decarbonisation operations, organisational efficiency, as well as mergers and acquisitions so that they can win in the future.
Consumer Goods & Retail
In retrospect, China's consumer goods and retail industry was searching for opportunities in a year of challenges. Offline retail industry, including clothing and restaurants, experienced an unprecedentedly difficult time due to the repeated pandemic outbreaks and the strict prevention and control measures. At the same time, online retail faced challenges in both stagnant traffic growth as well as logistics and distribution disruptions.In terms of categories, sectors like fresh grocery, food and home appliance had structural opportunities and challenges brought by Chinese consumers' stockpiling: some companies were well prepared and grasped the fleeting opportunities, while more had difficulties in manufacturing and shipping products amid supply chain disruptions to meet the unexpectedly huge demand. In the meantime, the tightened control on real estate industry, lower income expectations of homebuyers and the commercial crisis of leading developers had slowed down the overall consumer demand for home building materials, while companies of different status in this sector were exploring new ways of survival and growth fitting their condition.In the domestic market, the overall consumer demand had been suppressed for a short while. However, the new round of overseas growth of Chinese cross-border e-commerce platforms has created new opportunities for long-tail manufacturing companies in clothing and daily goods sectors. With this article, we're looking forward to working with everyone to brave headwinds, explore new themes to overcome current predicament, find smart solutions with high efficiency and low cost, as well as achieve new growth through proactive innovations and acquiring new capabilities.
In an era when economic situation and market landscape are constantly changing, digitalisation has become a key factor shaping many industries' development direction. In 2023, various industries will continue their drive to deploy more digital applications, with "customer experience" and "operational efficiency" being the top two buzzwords. Investing to enhance customer experience is one of the key objectives of business digitalisation. Developing an aligned experience across online and offline touchpoints will be a strategic initiative. Virtual reality and Metaverse will expand from the gaming sector to host more business applications, enabling more innovations in sales and experiential scenarios. Customised services based on data analytics will become a mainstream offer and inject new momentum into the development of experience-based services. Automation technologies are also becoming more mature, as collaborative robot and software agent will be used more widely. These trends are supported by the developments in certain digitalisation technologies and applications, such as IoT, digital twin, no-code AI application development and AI-related information security solutions. Wider applications of digital technologies will also support the sustainability transitions of other industries, and vice versa. Companies should further leverage the power of digitalisation, while fulfilling their compliance obligations, to improve customer experience and lift commercial performance. Digitalisation will become an efficient and sustainable growth engine amid an uncertain environment.
Culture Entertainment & Sports
With the release of China's "New Ten Measures" to relax the COVID control, Chinese people’s lives will gradually come back to normal, and the film industry also began to recover. Under the impact of the pandemic, it became apparent that the film industry is not sophisticated enough to withstand such a shockwave. Its digitalisation and industrial progress may make up for its shortcomings. Supported by preferential policies, virtual reality technology will enter the stage of industrial development. Content-based cultural and entertainment companies need to become stronger in digital capabilities, and find VR applications with partners in the virtual reality industry. China's three leading long-form video platforms (Tencent, iQIYI and Youku) continued to reduce costs and increase efficiency to improve profitability. The strategic cooperation deal between iQIYI and Douyin (Chinese version of Tiktok) was a milestone in the healthy and orderly development of the video industry. With the suspension of Tencent's Magic Core Digital Collection Platform, the interest in digital collection market has waned. The industry expects new policies to guide and clarify its future direction. Leading enterprises continue to adventure into the Metaverse in gaming, film, television, sports and other entertainment formats, attempting to recruit trial consumers for Metaverse contents. They also lead the establishment of various alliances to co-develop with other industries. The gaming industry has declined in both revenue and user scale as it entered a buffer period. The FIFA World Cup Qatar 2022 VAR (Visual Assistant Referee) system will become a benchmark of future integration of Big Data technology and major global sport events, or even the whole industry. At the same time, the revision of China's sports law marks a new chapter of its rule of law.
Culture, entertainment and sports industries are among the most active industries in China and may have the biggest growth potential. Roland Berger is a firm believer of their future and has been following their development closely. In 2023, we'll work with these industries to shape their bright future.
Technology & Internet
For China's telecom and technology industry, the year of 2022 was challenging but groundbreaking. Due to the external environment changes, it is facing more limitations. The global consumption demand remained lukewarm and lacked confidence. The resurgence of COVID created more uncertainties. But we believe only the strong stand in a cold winter, only the brave keep going forward in the dark before the dawn, only the wise focus on improving themselves during thunderstorms. China's technology industry will always remember where they came from and trudge along this difficult road to bring prosperity to the country. In 2023, we expect the technology industry will continue to enable other industries to enhance their operational efficiency and benefit more people with their innovations.
Pharma & Healthcare
Healthcare industry recovers as COVID fades into background, reshaping of market creates new opportunities The year of 2022 marks the third year since the outbreak of the COVID-19 pandemic. In the first six months, China's healthcare industry was severely disrupted by the sporadic resurgences of COVID-19 cases, on top of many other risks brought by the Russo-Ukrainian conflict, geopolitical tensions, energy crisis, high inflation, etc. In this context, the innovation and transformation of Chinese healthcare companies, the operation of medical institutions and the investment activities of the pharmaceutical sector were seriously challenged. In the second half of 2022, the overall political and economic tensions began to ease. Given the much higher transmissibility but lower pathogenicity of the Omicron variant, China began to accelerate its process of normalising COVID control policies.
Since November 2022, China's joint prevention and control mechanism of the State Council has released "Twenty New Measures" and "Ten New Measures" to optimise pandemic control protocols. Amid the new normal, China’s healthcare industry is expected to return to its pre-pandemic ways of working. We have seen many positive signs, including the original healthcare demand, reactivation of product innovation and commercialization, revaluation in the capital markets, switch of valuation and more confidence in investments and fundraising. We believe that 2023 will not only become a critical year for China’s transition to the post-pandemic era, but also a key opportunity window for the reshaping of its healthcare industry and the transformation of companies in this industry.
In 2022, China's economy witnessed a V-shaped trajectory due to the internal and external factors that exceeded market expectations, such as Russo-Ukraine conflict, US Fed Reserve raising interest rates, the resurgence of COVID and the decline of Chinese real estate market.
Looking forward, we expect that in 2023 China will be guided by the "general principle of pursuing progress while ensuring stability" via adopting the proactive fiscal policy and accommodative monetary policy for the post-COVID era. The country will issue a series of coordinated industry, technology and society policies to improve the confidence of market players as well as boost their confidence and expectations, especially for private firms, platform companies and the real estate industry. China will also increase its investment in technological innovations and green transition, reverse the weak consumption, ensure a quicker recovery, and induce the high-quality development which has been stated in the Report to the 20th National Congress of the Communist Party of China.
The steady and healthy development of China's real estate industry is crucial to the stability of financial markets as well as the country's overall social and economic development. In the short term, the government’s major task is to reverse the downward spiral of the industry and those hazards come with it. The government will work hard to ensure housing project delivery as well as the well-being of the people relevant to real estate, such as apartment buyers, real estate employees and vendors. It will also work hard to restore the property market's steady and healthy growth, stabilize the industry's expectation and make sure the real estate industry can once again help to support macro economy development. In the mid- and long-term, the government will accelerate the establishment of "a housing system featuring multiple suppliers and various channels of support that encourages both housing rentals and purchases". This system is the future goal of China’s real estate industry transition and will become a new pattern for the sector to continue propel China's economic development.
Now, we are at a time of momentous changes unseen in a century. The new round of technology and industrial revolutions has advanced further. A backlash against globalisation is rising. China has embarked on a new journey to build itself into a modern socialist country in all respects. Can emerging economies, such as China, become the new focus of the world and become new engines to drive globalisation forward? This article is a summary of recommended priorities for readers interested in China's civil economics in 2023. When drafting local industrial development policy, Chinese leaders need to align with the country’s new pattern of development that is focused on the domestic economy and features positive interplay between domestic and international economic flows, a.k.a. "Dual Circulation". They need to enhance the global competitiveness and influences of the modern industry systems in their city/region. When planning city development, they need to focus on growing their centre cities into truly "global cities", promoting high-quality development and shaping their global influences. In major global issues, they need to showcase the "Chinese way of governance", make China's voice heard, and strengthen China's voice in international governance affairs. For regional officials, it is crucial that they are making plans in a global context.
Investor Support / Mergers & Acquisitions
After encountered a sudden drop in 2022 recovering and highly active year of 2021, the private equity market slumped into winter in 2022, facing in the most uncertain and complicated market environment in recent years. Many "black swan" events happened at the beginning of 2022, which intensified global economic turmoil and caused the global inflation rate to rise far above expectations. Meanwhile, the geopolitical tensions and the reshuffling of the global supply chain have caused global investors' deeper concerns for risks. In this uncertain economic environment, a slow down in capital market activities is inevitable. Investment institutions are facing many challenges, such as the "dual pressure" on both fund raising and target finding, negative valuation gap between primary and secondary market, and exit difficulty. As a result, many of them chose to wait until a better economic environment in 2022, being more cautious in investing and M&A deals. Based on data from Merger market, the global transaction value in Q1 to Q3 of 2022 dropped by about 45 percent compared to last year's. Entering the new year, openness, win-win and recovery have become the new buzzwords of economic development. We expect that inflation, interest rates and the economic environment may have some room for improvement. For private equity, the year of 2023 is expected to be a year of rebound and new opportunities.
Operations & Performance Improvement
The year of 2022 was a year of COVID and fast global political and economic changes. These fluid scenarios have posed unprecedented challenges to business operations and management. Looking forward to 2023, the pandemic will go, but the evolutions of consumer needs and global supply chain landscape will remain. To navigate the business cycle and achieve sustainable growth in the VUCA world, companies need to equip themselves with both a correct strategy and operational excellence.
Next Generation Manufacturing
"Manufacturing" is the key value creation link of a business" operation. While it is being reshaped by our times, manufacturing still drives the development of our society. In 2022, the anti-globalisation trend has accelerated in semiconductor and other advanced manufacturing industries. Against the backdrop of intensified geopolitical tensions in the world, it has risen to a new height. At this moment, advanced countries in North America and Europe are busy building key links of industrial chains on their own territories to bring manufacturing back home and reverse the deindustrialisation trend. These moves are disrupting the conventional division of labour and manufacturing capacity footprint in the global manufacturing industry. In 2023, the world’s major economies, especially those with advanced manufacturing industries, will continue to significantly invest in local manufacturing industry chain. They will encourage the development of smart manufacturing and innovation to enhance domestic manufacturing companies' core competence. These actions will help their economies withstand the potential shockwave and limitations brought by the imminent collapse and chaos of global industry chain. In the future, the existing foundation of global division of labour will be totally overhauled. Chinese manufacturing companies will face both opportunities and challenges in this massive landscape reshuffle.
Chinese companies were under unexpected pressure in the past year due to global inflation, geopolitical tensions and the resurgence of COVID. Since the beginning of 2022, Roland Berger has observed Chinese companies' efforts in dealing with challenges on multiple dimensions, such as dwindling demand from consumers amid gloomy macro economy environment, disruptions in supply chain caused by frequent logistic congestion and drastic transition of supply models, systematic transformation requirements in sustainability, digital innovation and channel upgrading. But every cloud has a silver lining. Through our conversations with clients across various industries, we are awed by their remarkable resilience and extraordinary awakening in the face of these challenges, especially by their bold moves to reinvent themselves. Last year, we had many similar conversations with Chinese business leaders on the following questions about business transformations: How come our previously successful strategy and management approach no longer work? What short-term adjustments should we make? When will the next disruption happen to redefine my industry? What actions should I take to build our long-term organisational capabilities? Against this backdrop, Roland Berger has summarised some trends in organisation management for companies in China. Hope our two pennyworth can help our readers make better informed decisions.
Sustainability & Climate Action
In 2023, China will make steady and progressive efforts to deal with climate change. As Europe further advances its decarbonisation transition, the global supply chain will have to align to their higher requirements. In China, the main trends include more efforts in establishing standards, more urgency of realising carbon peaking, new breakthroughs in local green technologies and the expanded focus of greenhouse gases beyond carbon dioxide.
In the majority part of 2022, China deployed drastic measures to curb the resurgence of COVID. When strict lockdown measures were in place, manufacturing and innovation activities in automobile industry were significantly affected, resulting in a year lack of changes. In Roland Berger’s latest Automotive Disruption Radar Report (Edition 12), China was unseated by Singapore, which was crowned for the first time thanks to its earlier rebound from COVID than other countries and latest breakthroughs in the shared mobility sector. That being said, China is still the distant leader of the new energy vehicle industry. It has comfortably kept its No.1 position in both electric vehicle sales and expansion efficiency of EV charging system. The corporate fleet electrification has also become a hot topic in global markets. Many stakeholders of city logistics service are trying to build their versions of a smart urban network, but they need a good collaboration framework to achieve a win-win outcome. Toward the end of 2022, Chinese government gradually relaxed its COVID control measures. We can expect the long-haul travel demand to benefit directly and will have an accelerated recovery.