The China Strategy on Foreign Companies - 養 nurture, 套 trap, 殺 kill

The term ("養 nurture, 套 trap, 殺 kill") suggests a three-stage process where China

1. initially encourages foreign investment (nurture), then 2. imposes conditions that limit or control the company's operations (trap), and finally 3. squeezes them out or reduces their market share to favor domestic firms (kill). Below is an analysis based on available information and the broader context of China's economic policies:

Understanding "養套殺" in Context

1. Nurture (養): China has historically attracted foreign companies with its massive market potential, low-cost labor, and incentives like tax breaks or subsidies. For example, policies under the "Open Door Policy" since the late 1970s encouraged foreign direct investment (FDI) by offering access to a growing consumer base and manufacturing capabilities. Companies like Apple, Volkswagen, and Tesla have benefited significantly, with Apple earning $227 billion in operating profit in China over a decade and Tesla's Shanghai Gigafactory becoming a critical production hub.
2. Trap (套): Once foreign companies establish operations, they often face regulatory and market pressures that align with China's industrial goals. These include requirements for joint ventures, technology transfers, or compliance with stringent national security and data laws. For instance, foreign firms may be compelled to partner with local companies, share intellectual property, or localize production, as seen in cases like GM's partnerships in the auto industry. Additionally, China's "negative lists" restrict foreign access to certain sectors, and vague regulations on "state secrets" can create operational uncertainties.
3. Kill (殺): Over time, foreign companies may lose market share to domestic competitors, often supported by state policies. This can involve subsidies for Chinese firms, discriminatory regulations, or non-tariff barriers like those faced by H&M after its stance on Xinjiang cotton. The rise of companies like Huawei and Xiaomi, which have outcompeted foreign brands in sectors like electronics, exemplifies this phase. Some foreign firms, like Lotte and Samsung, have exited China entirely due to these pressures, while others face declining profitability

Conclusion

"養 nurture, 套 trap, 殺 kill" reflects a pattern some foreign companies experience in China, driven by policies that prioritize domestic industry growth. While not an explicit government strategy, it aligns with observed trends in China's industrial policies and market dynamics. Foreign firms should conduct thorough due diligence, assess sector-specific risks, and weigh the benefits of China's market against potential long-term challenges.