The Flanders-China Chamber of Commerce and the EU-China Business Association organized a webinar focusing on China's evolved development strategy, reform priorities, and economic recovery – a "reality check" after the 2025 National People's Congress (NPC).
Ms. Gwenn Sonck, Executive Director, Flanders-China Chamber of Commerce, introduced the topic of the webinar and the speakers. Today's webinar takes a closer look at China's evolving development strategy, reform priorities and economic recovery, a timely reality check following the 2025 National People's Congress, which took place in March this year. We'll explore the strategic business environment in China as it stands today and what it means for European businesses. We'll delve into the country's latest reform policy priorities and the path of post-COVID economic recovery and the impact of key geopolitical dynamics shaping the business landscape.
Our keynote speaker is Mr. Markus Herrmann Chen, Co-founder and Managing Director of China Macro Group. Marcus is a Swiss-Chinese China analyst and consultant who advises European businesses and institutions on China-related strategy, policy and geo-economic trends. He previously served as Government Affairs Director at Bayer Materials in China and as Consultant with the Boston Consulting Group in Shanghai, Hong Kong and Zurich. He's currently Strategic Advisor to Caixin Global, the international arm of one of China's leading financial media groups and Vice President of the Swiss Chinese Chamber of Commerce. He also serves on the advisory board of the China-Europe International Business School in Zurich and is part of the World Economic Forum's Expert Network.
Before giving the floor to a speaker, I would just like to say a few words about our upcoming mission to China. So as you know, China has become a leader in innovation in many areas. To succeed in this fast-changing environment, it is essential that our businesses embrace adaptability, certainly today, and visionary thinking. These are the types of leaders that are joining us on our innovation trip to China, which takes place from 25 to 31 May, organized by the province of West-Flanders and the Flanders-China Chamber of Commerce. The mission takes us to Hangzhou and Shanghai. Hangzhou has been named as the most innovative city of China and you've all heard about the AI startup Deep Seek. The goal is really to learn from China's innovation and on the other hand to explore potential opportunities for collaboration. We will have a few seats left, so if you want to join us you can contact me for info or look at our website.
Mr. Markus Herrmann Chen, Co-Founder & Managing Director, China Macro Group, gave a presentation on China's Evolving Development Strategy, Reform Priorities, and Economic Recovery – A Reality Check After the NPC 2025. The China Marco Group (CMG) is a specialized European management consulting and research firm. A couple of features that define us is our cross-cultural epistemic. If you want to understand China, you need to look at any phenomenon from policymaking to the issues that policymaking is solving also through a socioeconomic, sociological lens inside China to understand intents and measures. We feel accountable to both discourses, inside China, as well as here in Europe. We are interdisciplinary. We think you need to look at China by combining a business lens, a public policy lens and a macro-economic lens. Finally, I want to highlight multipolar analytics. You need to analyze the world with a multipolar approach. So we have a Russian colleague in our team, Alexandra. We have a Taiwanese colleague in our team. We have someone formerly from the China desk of the EEAS in the European Commission, to bring together all these different viewpoints and have the debates internally, sometimes also externally, and bring a more calibrated and more fact-based conclusion to our clients. Our main service areas are consulting, briefing, monitoring and curation. You see it on the right side. Mr. Chen introduced some of CMG's primers and webinars, which can be accessed on the CMG website. He also wrote an essay for the World Economic Forum's summer session in Tianjin.
Mr. Chen first talked about the evolving policy context for foreign business. It is crucial to understand all the decisions that are being made now, including at the NPC, to go back to the year 2020. The main message that I want to share with you is that the NPC is actually not so critical. The actual game changer was the introduction of the dual circulation that implements the new development strategy, which is inferred from the new principal contradiction that was decided in 2017 at the 19th Party Congress. And then the Third Plenum was the second game changer. In reform policymaking, I highly advise you to separate development policymaking and reform policymaking to be able to grasp how Chinese government thinks, because you first have to develop and then you just optimize the governance of your development, which is reform and it's distinctly different. The Third Plenum was purely on reform policymaking and not about new development priorities which will come with the 15th Five Year Plan. Investing in people is going to be one of the top level themes of the 15th Five Year Plan.
On the economy, we have the trade-in program and structural measures about domestic demand, a residency-based social security system and public service. It has never been a goal of the Chinese government to beat market expectations or using a bazooka stimulus. We think it's a very rational choice because if you now do a bazooka type of stimulus, you will just delay your structural reforms by 10 years. In the long term, the most decisive factor for productivity and growth in China will hinge on the so-called new quality productive forces (NQPF). In October the Fifth Plenum will release the outline for the 15th Five Year Plan that will then be decided in March next year at the 2026 NPC.Mr. Chen quoted Li Junru, former Vice President of the Central Party School: “The core of the 14th Five Year Plan is to realize the biggest strategic shift since the Third Plenary Session of the 11th Central Committee in 1978 and the establishment of a market economy system”. The quote goes on to mention the dual circulation as the main implementing concept, largely influenced by a speech that President Xi gave in April, which I think is the most important geo-economic speech that a Chinese leader has delivered in the last decades.
We think it's a paradigm shift. The previous paradigm was benefiting from opening up and exporting into the global economy, the paradigm of a world factory. So you get inputs, you process them, and then you export them into the world. And export, of course, being an explicit growth driver and China was largely using its labor endowment, and urbanization for productivity growth. It was trying to catch up technologically and learning from FDI. We think the new paradigm is benefiting from the domestic economy as a core, but also managing the interdependence with the world economy, and it is called dual circulation. It is about building the domestic demand system, especially consumption and elevating social policy, to balance development and security interests in a novel way. The de-risking as part of dual circulation has about six main components, but I'll just mention three: self-reliance, basic research breakthroughs, and tech bottlenecks.They now use a market lens as opposed to a corporate lens. If you look at China's industrial policy up until 2020, the logic was to track the market share of Chinese companies against foreign business, but then it shifted with the experience of the trade war and the Covid pandemic to looking at industrial policy through the lens of market supply.
As long as you supply within the Chinese jurisdiction, being an SOE, private or foreign company, you fall under the logic of China's way of de-risking and hence you no longer need to track market share. It is a huge shift from a corporate lens to a market lens. China's strategic thinking evolved. It is no longer competing against single foreign companies inside China, which doesn't make sense in the geo-economic context, but it is now competing against the U.S. and Europe and other geo-economic factors and trade changes. Dual circulation is in the end about total factor productivity growth from especially new quality productive forces.
President Xi used a metaphor, saying that China will emerge as a large gravitational field. If you compare the “world factory” with “a large gravitational field” , it is a completely different metaphors. One sees itself at the center of value chains flowing through China and back again into the world and the other one sees itself as a purpose in itself. Being an own economy with a lot of demands that should attract factor resources and talent and technology and so on. So the more concise question I will then put to foreign business is what is your strategy for dealing with a large gravitational field? Do you want to be in it? Do you want to be outside it? Do you want to use the resources inside it? And what are the long-term implications?
So I started with the quote to say that the 14th Five Year Plan was the biggest strategic shift in the last 50 years. I tried to explain the change from the previous to the new paradigm and I gave you this metaphor of the large gravitational field The Third Plenum was the strongest in the economic reform areas, but also looked at social and cultural reforms, and governance and security reforms. The premise of the Third Plenum already last July was that Donald Trump would be reelected because opening up measures have been accelerated from July onwards, including visa-free travels to everyone but the U.S. And then, of course, the different tiers of proximity. So for instance, one measure that was decided was the full cancellation of tariffs for the least developed 35 countries, and all FDI restrictions into China's manufacturing have been canceled. I would predict for this year that approval for Chinese capital going out into Europe and elsewhere will be strongly simplified. This all makes sense from a strategic perspective if you want to position yourself amid uncertainties created by Trump 2.0. It was also a priority at the Third Plenum to improve the way innovation and industrial policy is being done. If you want to understand the framework conditions of foreign business, I highly encourage you to read chapter six of the 14th Five Year Plan. It is mainly about nine different factors, including anti-monopoly, IP protection, social credit system, SOEs, and so on. We saw the most credible policy claim of equal treatment between foreign, state and private capital. One is the cancelation of the precedent of the public economy over the non-public economy, which was deleted in the Chinese constitution. China's industrial policy is no longer on the corporate level, it is on the market level. So it also makes sense that you try to treat capital equally as long as it is engaged in the Chinese economy. The state side has now embraced innovation and contribution from the private sector and the private sector has now embraced the new normative framework of dual circulation, which includes social policy.
There are a couple of events that happened at the NPC. There was a press conference on people's livelihood, which I think is a good lens to see the shift from export and infrastructure centric thinking to now people's livelihood. Domestic demand has been now re-put to the top at the same level as the supply side. Investment and also dealing with China into the future is one example of a decision making tool. A second example is not looking at the international economic order, but looking at China itself. From this you can infer five different China development scenarios. We see three archetypes. The first is if you're partially on-shored in China. The second one is an SME, fully on-shored, including manufacturing and some R&D. And then you have an on-shore MNC. The main challenges facing the first archetype are an import dependency because it affects price, it affects speed, and you have no or limited strategic capabilities if you only have a sales team on the ground. Many things that you need to monitor, you will just not see because you only have people who are talking to clients and you have nobody watching the broader landscape, the downstream, the policy developments, the geopolitical factors and so on. I would say the biggest challenge for the second archetype is to operate like a Chinese company. The biggest challenge for the on-short MNCs is how deep should you actually engage in China's economy and collaborating with SOEs or to join this integration of the innovation value chain. The state of strategic decision making across these three archetypes are paralysis or slowness in the decision making for the first archetype and it is misaligned views for the other two. The core is to clarify your reason to exist in China and there are five strategy options: premium innovation, growth, hibernation, group value added and finally, of course, also exit.
A Q&A session concluded the webinar. FCCC Chairman Philip Latour: Domestic consumer confidence is low in China, unemployment is higher among the youngsters, real estate is really down and now you will have a stock market crisis. What are the key measures of the NPC to restore consumer confidence? And the second aspect, it seemed that the plenum has introduced a new concept that you highlighted: invest in people and political energy and local demand. What does it mean in practice and is it helping to restoring consumer confidence. Mr. Chen: The Chinese government is trying to be disciplined, patient and surgical, which means that China is not resorting to a kind of bazooka, but it is the most difficult expectation management exercise in history probably at the scale of China, having had double digit growth for such a long time. Work at BCG in Shanghai we have hundreds of alumni and I always ask them why they are so pessimistic? The subjectivity is just to say that the dividends from China's development are more difficult to get. So how should the Party manage the process from fast development to a new normal and then to high quality development? The core factor is the psychology of the people.
