Economic Growth

How China can best position itself for growth in the next big 'arenas of competition'

China has the potential to compete successfully in several of these future 'arenas of competition'.

China's rapid growth has positioned the country as a global economic powerhouse. Image: Christian Lue/Unsplash

Joseph Luc Ngai
Chairman, Greater China, McKinsey & Company
This article is part of: Annual Meeting of the New Champions
  • China's rapid growth has lifted millions out of poverty and positioned the country as a global economic powerhouse.
  • A McKinsey Global Institute report has identified the top 'arenas of competition' for growth and opportunities.
  • Chinese companies are well-positioned to thrive, but collaboration, fundamental innovation and education will be key.

China has undergone an extraordinary economic transformation over the past two-and-a-half decades. The country’s rapid growth has lifted hundreds of millions out of poverty, created a thriving middle class and positioned China as a global economic powerhouse.

While there are many factors that have led to this success, research from the McKinsey Global Institute (MGI) provides another lens on how participation in the most important “arenas of competition” is critical for outsized growth and opportunities for countries and companies.

What are these “arenas” and how should China position itself to prosper from them?

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Arenas poised to shape the global economy

The McKinsey Global Institute defines arenas as dynamic, high-growth sectors that are poised to reshape the global economy by driving significant innovation, competition and value creation.

MGI analyzed the 12 arenas that experienced outsize growth and dynamism from 2005 to 2020. These industries include e-commerce, biopharma, electric vehicles (EVs), consumer internet and cloud services. They boasted revenue compound annual growth rate (CAGR) of 10% and market capitalization CAGR of 16%, and tripled their share of global GDP from 3% to 9% over this period.

China’s success in these arenas has been notable, with EVs, personal computers, ecommerce and social commerce industries where domestic firms are starting to make inroads into global markets. This has been fuelled by a combination of factors: a massive domestic market that allows companies to scale quickly, a strong manufacturing base, active state support and an entrepreneurial environment that has supported innovation.

Looking toward the next two decades, one question comes to mind: what are the arenas of the future, and how well is China positioned to compete in them?

Arenas in which Chinese companies could thrive

MGI’s analysis sheds light on this. They identified 18 arenas that could transform the global economy, generating an estimated $29 trillion to $48 trillion in revenues and $2 trillion to $6 trillion in profit by 2040.

China has the potential to compete successfully in several of these future arenas. For instance, some Chinese companies have emerged as major players in e-commerce and AI-enabled services, leveraging innovations in data analytics and supply chain efficiencies to compete successfully in global markets.

In AI-enabled services, China’s established internet and ecommerce companies such as Alibaba and Baidu are integrating generative AI into applications like personalized education, short video creation and enterprise software, while newer players such as DeepSeek have made breakthroughs in large-scale AI models.

China’s advancements in EVs, batteries and robotics provides a strong foundation for future growth in the arenas of tomorrow. Domestic players such as BYD as well as startups like XPeng have made strides in China and are expanding globally, supported by an integrated value chain for raw materials, batteries and digital services.

In robotics, service robots are contributing significantly to supporting logistics and e-commerce. These examples underscore China’s ability to lead in emerging arenas, leveraging its scale, innovation ecosystem and technological expertise.

Three key imperatives for Chinese companies

However, success in these and other arenas going forward will require more than just leveraging existing strengths. Three key imperatives for Chinese companies stand out:

1. Collaborating globally

Many of the future arenas – such as AI, space technology and next-generation healthcare – are inherently global. Success will depend on China’s ability to work with companies and stakeholders around the world. This includes fostering international partnerships, participating in global standard-setting and ensuring that Chinese companies can compete and thrive on the world stage.

2. Investing in fundamental research

While China has excelled in application-driven innovation over the past few decades, the country still lags in conducting fundamental research. As of 2024, only 7% of China’s R&D expenditure went toward fundamental research, compared with 10-15% in advanced economies.

Many of the future arenas will require breakthroughs in hard science and foundational technologies. This will demand greater investment in research and development, stronger collaboration between universities and industry, and policies that encourage risk-taking and long-term thinking.

3. Reskilling China’s workforce for the future

The benefits of these future arenas must be broadly shared across China’s population, and a critical enabler will be the transformation of its education and skills-development system. China’s education system, while well-suited to the industrial economy, needs to evolve to meet the demands of a digital, postindustrial economy.

This transformation will require a focus on lifelong learning, digital technologies and public-private collaboration. Rural-urban migrants, who make up a significant portion of the workforce, face unique barriers to accessing education and training, and addressing these gaps will be essential to ensuring inclusive growth.

China is positioned to thrive in high-growth arenas

China’s economic journey over the past two decades has been defined by its ability to seize opportunities in high-growth arenas. As the world transitions to a new set of transformative sectors, China is well-positioned to thrive. But success will require a new playbook – one that emphasizes global collaboration, fundamental innovation and education.

To be sure, China will need to navigate an increasingly complex global environment marked by shifting geopolitical dynamics, evolving trade relationships and heightened competition in technology and innovation.

Yet the choice is clear: China can build on its strong foundation to shape the future of these arenas, creating not only economic value but also a more innovative, inclusive and globally integrated economy. The next chapter of China’s economic story is waiting to be written, and the opportunities are as vast as they are exciting.

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