China is increasingly seen as a place where multinational companies develop technologies, cultivate innovation and build capabilities for global markets, marking a shift from its traditional role as simply a manufacturing base and consumer market, a senior KPMG executive said.

The transformation is prompting foreign businesses to rethink their China strategies, with greater emphasis on local research and development, partnerships with Chinese companies and investment in capabilities that can strengthen their global competitiveness, said Mark Harrison, partner and head of multinational clients at KPMG China.

"China's role in the eyes of multinational companies is moving beyond being an important consumer market and manufacturing base, and moving toward being an important innovation hub and platform for serving global markets," Harrison said in a recent exclusive interview with China Daily.

China's industrial ecosystem, which brings together R&D, suppliers, manufacturing and commercialization, enables companies to shorten development cycles and develop technologies at scale, he said. Its engineering talent, digital infrastructure and sophisticated supply chains also provide advantages for multinational companies seeking to strengthen their global competitiveness.

Citing KPMG's 2026 MNC China Outlook Report, Harrison said 62 percent of surveyed multinationals already consider China important to their global innovation strategies.

He cited electric vehicles, batteries, industrial automation and artificial intelligence as examples of how China has moved from primarily manufacturing and adapting technologies to becoming a source of innovation in its own right. Technologies and products developed in China could also potentially be deployed in other markets, particularly emerging economies, he said.

The transformation, however, has also changed the competitive landscape for foreign businesses. Chinese companies are no longer competing primarily on price, with many becoming leaders in technology, product development, manufacturing efficiency and speed to market.

For MNCs, relying on established international brands, technologies or business models is no longer sufficient. They need to demonstrate genuine competitive advantages and adapt to local market dynamics, Harrison said.

He advised foreign businesses to strengthen local sourcing, R&D and decision-making, invest in local talent and partnerships, and focus on market segments where they have genuine advantages rather than trying to compete across every segment.

Looking forward, Harrison sees strong growth potential in areas including advanced manufacturing and industrial technology, technology and innovation, as well as healthcare and life sciences.

"China is continuing to strengthen its capabilities in areas such as robotics, automation, high-end equipment and smart manufacturing. Our survey shows that innovation is increasingly viewed as one of China's most important future contributions to MNCs' global operations," he said. "And healthcare and life sciences will be supported by an aging population, rising healthcare needs and continued investment in medical innovation."

While highlighting opportunities arising from a growing need for healthcare, senior care, education, leisure and tourism, as well as premium food, personal care and consumer technology, Harrison noted Chinese consumers are becoming more selective about price, quality, convenience and overall experience.

"This creates room for foreign brands that offer genuine differentiation, rather than relying on their international image alone," he said. "China's market remains substantial, but success increasingly depends on understanding specific consumer needs and responding quickly."

Despite mounting uncertainties, confidence is improving. The KPMG survey found that 59 percent of respondents were confident about China's economic outlook in 2026, up from 51 percent in 2025, while 72 percent were confident about China's economic prospects over the next three to five years, up from 64 percent in 2025.

"Renewed confidence reflects a recognition that, despite economic challenges, China remains difficult for MNCs to ignore," Harrison said. "China offers sophisticated supply chains, manufacturing capabilities, talent and an increasingly important innovation ecosystem."

Contact the writers at ouyangshijia@chinadaily.com.cn