INDUSTRIAL PRACTICE What Chinas “new normal” means for multinational companies Heidrick and Struggles second annual survey of multinational executives with responsibility over China operations finds companies remain optimistic about the countrys prospects despite slower growth and heightened competition.After nearly two decades of double-digit growth, it is clear that Chinas economic boom is beginning to slow a state of affairs that Chinese President Xi Jinping has dubbed Chinas “new normal.” The Chinese government has set a more modest target of 7% annual GDP growth, and the country now enters a phase of restructuring, consolidation, and an economy driven more by innovation than input and investment. The governments goal is to strike a better balance among economic, social, and environmental objectives. As the global business community adjusts to the new normal, the Chinese economy faces several additional challenges: the continuing weakness in global demand for its exports, rising domestic wages, falling business investment as a result of the rebalancing strategies, sectors with excess capacity, and a softening real estate market. In August 2015, the Peoples Bank of China surprised the market by cutting the daily renminbi (RMB) reference rate. A weaker currency could help boost exports, but the absolute impact on Chinese trade balance and growth is likely to be inconsequential over the long term. Meanwhile, Chinese companies have become more formidable both locally and abroad. Many are going global partly through government-supported campaigns such as “One Belt, One Road, ” a massive effort to expand linkages from China across Asia to Europe. The initiative primarily aims to promote development in inland China, though it also seeks to absorb excess Chinese manufacturing capacity. What does all this mean for multinational companies (MNCs) operating in China? Given the rapid rise of the worlds second-largest economy, many MNCs now look to their China operations to lead the way in growth opportunities. However, as the country enters a new phase of more moderate growth, its business environment offers new and more intense challenges across different sectors. Still growing As part of an ongoing effort to better understand Chinas business environment, Heidrick just 62% of respondents expect to increase their manufacturing and operating capacity in 2015, down from 83% who expected to increase it in 2014. Only 11% expect to reduce capacity in 2015 (Exhibit 2). In the face of slowing growth as well as rising labor costs, some companies have implemented hiring freezes. According to our survey, just over half of respondents (51%) expect to increase their head count during 2015, while 26% expect no change. These figures are quite different from last year, when 79% of respondents planned to increase their head count and 14% expected no change (Exhibit 3). Overall, companies indicate they are going to stay on track with their recruitment objectives, although at a slightly slower pace compared with 2014. Moving up the supply chain Despite the slowing rate of growth, most business leaders view China as a long-term growth market that will continue to play an important role in their overall global strategies. Many companies are also Heidrick agribusiness; automotive; building products; capital equipment; chemicals; electrical; engineering, construction, and infrastructure; mining and metals; paper and packaging; and transportation and logistics. Working closely with clients ranging from early-stage start-ups to the worlds largest public companies, we develop an organizations ideal candidate profiles by getting to know its unique competitive challenges, business objectives, and leadership culture. We help our clients see beyond their candidates functional or industry backgrounds to find those leaders most suited to meet their organizations business objectives. Industrial Practice leaders Daren Kemp Global Managing Partner dkempheidrick Stafford Bagot Regional Practice Managing Partner, APAC sbagotheidrick Guy Farrow Regional Practice Managing Partner, Australia and New Zealand gfarrowheidrick Bo Herbst Regional Practice Managing Partner, Americas bherbstheidrick Stefano Salvatore Regional Practice Managing Partner, EMEA ssalvatoreheidrick WE HELP OUR CLIENTS CHANGE THE WORLD, ONE LEADERSHIP TEAM AT A TIME