According to a 2025 report issued by the American Chamber of Commerce in South China on Feb 26, 58 percent of 316 companies participating in a survey reported that they consider China to be one of their top three global investment priorities, and 76 percent reported they will reinvest in China in 2025.

The recent surge in AI models, robotics and other forms of innovation has created a renewed sense of enthusiasm in China. President Xi Jinping’s meeting with key private sector businesspeople on Feb 17 also sent a signal on the importance that Beijing places on Chinese private businesses.

Despite continued uncertainty in global geopolitics and the United States’ increase in tariffs on Chinese goods, there was a clear sense of renewed confidence in the Chinese economy as reflected by a recent surge in the Hong Kong and Chinese mainland stock markets.

But what are foreign companies truly thinking and feeling about China?

Of course, it depends on a company’s chosen industry. For capital-intensive industries such as chemicals and petroleum, investment decisions are made over a multiyear horizon. Given the significance of chemicals in China, companies in this sector inevitably retain a high level of importance.

For consumer goods or food, on the other hand, the investment cycle is much shorter. The competitive landscape and consumer needs could vary within a relatively short time, often shaping how the management of companies in these sectors think about China.

For the automotive sector, China has redefined the global competitive landscape for electric vehicles. Foreign automakers are finding that they need to stay in China not only for the market but also for knowledge and the technology of cutting-edge innovations.

The healthcare sector in particular is unusual. While it is open for foreign investment, its regulations and policies on price control and localization requirements create challenges for foreign companies. The protectionist tendencies of some local governments also create an uneven playing field in the minds of foreign companies.

Of course, the geopolitical repercussions given the shifting relationships between China and the US, Europe, Russia and other countries are causing concerns for many foreign companies.

Their concerns could range from basic issues such as how local governments (usually in lower-tier cities) fail to follow up on their initial commitments, to local protectionism.

Foreign companies’ concerns also cover bigger strategic issues such as whether they could effectively compete in the Chinese market with the rapid rise of capable Chinese competitors who often provide alternative price-value tradeoffs to customers. As China quickly becomes an epicenter for innovation, many foreign companies are hard-pressed to keep up with the pace and intensity of the innovative capabilities of their Chinese competitors, as well as the quickly evolving preferences of tech-savvy Chinese customers.

While some multinational corporations (MNCs) have already recognized this and have set up or are setting up mechanisms to tap into China’s innovations, the country’s current explosion in AI-driven innovation is likely to present further obstacles.

China’s tech innovations are evolving at lightning speed especially in the application of AI in various industrial scenarios. Many industries are on the point of being disrupted. Industry boundaries are shifting and new strategies, products, business models as well as capabilities will all need to be redefined. New customers will evolve as well as competitors and collaborators. A new period of corporate transformation is in prospect.

Throughout these changes, Chinese companies will likely be the first to embrace an “AI mindset” through which new ways of thinking about business and new corporate management models will evolve. Many Chinese companies will undergo an “AI transformation”, taking their strategy, business models, processes and capabilities to a totally different level. Many foreign MNCs may well find it hard to recognize the new competitive pattern driven by leading Chinese corporations. This challenge will be more acute for many companies headquartered in Europe or the US rust belt, as many of them have not fully transitioned into the digital age.

For the last several decades, managing the knowledge and perception gap between global headquarters and the realities on the ground has been the most prevalent and persistent challenge faced by heads of MNCs in China.

Often, it’s not because the local managers don’t know what is going on in China. Rather, it is because when they report the realities on the ground to the people at headquarters, they often cannot appreciate the speed and intensity of changes in China and do not respond quickly to the situation. This often leaves the MNCs at a marked disadvantage.

As Chinese companies apply AI to their business scenarios, the gap in the MNC headquarters’ cognitive understanding of China and its increasing importance for businesses in the rest of the world will widen, causing a larger gap between perception and reality.

As China continues to make progress, MNCs will find China becoming not only a large market but also increasingly a source of inspiration for innovation and knowledge. And, the gap won’t simply be about technology or its application, it will also be about the fundamental definition of what a business will become, its organizational philosophy, management model and the role of individuals in an organization. Critically, MNCs will find that leading Chinese companies will make even faster progress. New Chinese disruptors will emerge. This will have major implications for the global competitive landscape relevant to MNCs, and indeed for almost every foreign company.

The author is founder and CEO of Gao Feng Advisory Company, a strategy and management consulting firm with roots in China.

The views do not necessarily reflect those of China Daily.