Multinational companies are facing a major shift in China, as sluggish demand, rising US-China trade tensions, and the rapid ascent of local Chinese brands force a strategic rethink across industries.

From automakers to apparel and tech to food, the world’s second-largest economy is becoming an increasingly difficult environment for global businesses. Some firms have pulled earnings forecasts altogether, while others are adjusting to a new normal of “market normalization” driven by changing consumer behavior.

IKEA CEO Jon Abrahamsson Ring acknowledged to Reuters that low consumer confidence in the Chinese market remains a significant challenge.

"We need to find smarter ways of producing so the prices become even more competitive, and we need to learn to be even more relevant for the Chinese market," Ring told the news outlet, highlighting the impact of cost sensitivity and shifting preferences.

Companies like BMW, Mercedes-Benz, and Porsche are seeing declining sales in the world’s largest auto market. This is partly due to pricing pressure and a growing preference for domestic brands, which now dominate nearly 70% of the market, up from 38% in 2020.

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Foreign automakers, tech firms, and retailers cut back

The auto industry isn’t alone in feeling the heat. Nestlé, the world’s largest packaged food company, is refocusing its efforts on creating demand rather than relying on distribution networks. Meanwhile, ASML, a key supplier of semiconductor equipment, warned that Chinese demand could fall “significantly” in the coming year.

Micron is reportedly halting the supply of server chips to Chinese data centers, another sign of rising US-China trade tensions disrupting global businesses.

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Retailers are also adjusting. Uniqlo’s parent company, Fast Retailing, saw profit and sales decline in China, its largest market, while reporting a 24% revenue rise in North America. Nike, facing stiff competition from domestic players like Anta and Li Ning, marked its fifth straight quarterly decline in the Greater China region.

The sportswear giant recently sent NBA stars LeBron James and Ja Morant to China in a marketing push, but with uncertain results.

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Local Chinese brands lead in price, reach, and innovation

Across almost every consumer sector, local Chinese brands are gaining ground. From EVs to beauty products and coffee shops, domestic players are becoming dominant.

Luckin Coffee now undercuts Starbucks with lattes priced at just 9.9 yuan ($1.40), a third of Starbucks' typical price. Ice cream chain Mixue is challenging Häagen-Dazs with more affordable offerings.

Homegrown cosmetic labels like Proya and Chando are expected to surpass foreign counterparts in market share by 2025, according to Frost & Sullivan.

Fashion brand Urban Revivo, often called “China’s Zara,” is pushing for international expansion.

Laopu Gold, dubbed the “Hermès of gold,” has surged 214% this year, blending luxury with Chinese cultural motifs. Over 77% of its customers also shop at Louis Vuitton, Cartier, and Tiffany & Co.

These brands resonate more with local consumers, thanks to price competitiveness, cultural relevance, and online engagement strategies tailored for platforms like Taobao and WeChat.

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China’s deflationary pressures and sluggish GDP growth are prompting speculation over additional policy intervention. Upcoming GDP and retail sales data, along with corporate earnings, will provide a clearer picture of China’s economic direction.

But one trend is already clear: for global brands in China, the playbook is changing. Competing with agile, tech-savvy, and cost-effective local Chinese brands now requires more than just name recognition; it demands full localization, pricing innovation, and cultural fluency.