McDonald's stake reacquisition reflects confidence in Chinese market

McDonald's recently announced a decision to buy private equity firm Carlyle's entire 28 percent stake in its China business, which was sold by the burger chain in 2017.

The reacquisition, which will increase McDonald's holding to 48 percent, has shown its confidence in the Chinese consumer market. It also disproves some viewpoints suggesting a "Chinese market downturn" or foreign investment "fleeing China".

China is now McDonald's second-largest market with a total of 5,500 restaurants, while the burger giant plans to have over 10,000 outlets in China by 2028. "We believe there is no better time to simplify our structure, given the tremendous opportunity to capture increased demand and further benefit from our fastest-growing market's long-term potential," said McDonald's President and Chief Executive Officer Chris Kempczinski in a statement.

Behind McDonald's ambition is China's sustained momentum of post-COVID economic rebound and consumer demand recovery. Data from the National Bureau of Statistics (NBS) showed that the business income recorded in the country's catering sector increased by 18.5 percent to 4.19 trillion yuan ($588.4 billion dollars) in the first 10 months compared with the same period a year ago.

China's GDP grew 5.2 percent year on year in the first three quarters of 2023, according to the NBS. The International Monetary Fund projected China's GDP to grow by 5.4 percent in the whole year, reflecting a strong post-COVID recovery.

McDonald's saw its annual number of newly opened outlets in China increase from about 250 in 2017 to around 500 in 2022. Boosted by localization methods, such as the development of a WeChat app and promotions on social networks, McDonald's China business has realized systemwide sales growth of more than 30 percent since September 2019, according to the company.

China's high-standard opening up policy has boosted foreign investors' trust and confidence in its market.

Many large multinationals have been actively grasping opportunities generated by China's huge consumer market. Swire Coca-Cola Ltd. started the construction of a new plant with an investment of 2 billion yuan in Suzhou in September, saying that it will invest over 12 billion yuan in the Chinese mainland in the next decade. IKEA said in August that it would invest 6.3 billion yuan in the Chinese market over the next three years, while Tesla announced in April that it would build a new mega factory in Shanghai for the manufacture of its energy-storage product.

According to the Ministry of Commerce, a total of 41,947 new foreign-invested companies were established in China in the first 10 months of 2023, up 32.1 percent year on year.

Chinese authorities recently pledged that the country will continue to relax market access and provide a level playing field for foreign investors, with measures such as scrapping all restrictions for foreign investors entering the manufacturing industry.

The moves made by multinationals are in stark contrast to the hype of so-called "decoupling" or "de-risking" from China. They prove that the steadily recovering Chinese market remains a sought-after destination for global businesses.