By Reshma Kapadia

Zak Dychtwald, founder of the research and advisory firm YCG Bridgeworks, spends his time traveling the world to help companies understand China and the developing trends in his adopted country that will reshape global business.

Dychtwald grew up on the West Coast of the U.S. in a home of demographers and moved to Chengdu, China, after graduating from Columbia University. Initially he worked odd jobs such as tutoring and videogame translation, before diving more deeply into researching China's equivalent of millennials. YCG stands for Young China Group.

He was on a work trip back in the U.S. when the Covid-19 pandemic hit China. Unable to get back, he eventually wound up in Mexico, getting a front-row seat to the rewiring of globalization as U.S. companies shifted production closer to home. As a sought-after advisor to industry executives in sectors ranging from travel to semiconductors, Dychtwald, now based in Shanghai, also has kept tabs on China's growing cohort of entrepreneurs and the innovation feeding the U.S.-China strategic rivalry. The company is expanding its efforts in Southeast Asia, India, and Latin America, as well, a reflection of the continuing shifts in global trade.

Barron's spoke with Dychtwald in early September about how Chinese consumers are adjusting to a prolonged economic downturn, why global companies should prepare for more Chinese competition, and how the government is keeping a lid on social unrest even as the country's economic malaise continues.

An edited version of the conversation follows.

Barron's : Why are young Chinese the key to understanding the country?

Zak Dychtwald: The whole boomers/Gen Z/millennial categorization is a U.S. and Western European--based construct for generations that doesn't work for China because Chinese demographics change so rapidly. China generations are typically viewed on a 10-year basis, with savvy marketers taking even a narrower look.

People born after 1990 are the pivot generation. They were raised in multigeneration households. Like the parents of American baby boomers who grew up stashing money under the mattress through the Great Depression, the parents of China's young adults clawed their way out of poverty after the Chinese famine and cultural revolution. China's post-1990s cohort, however, was born into a growing economy. This is the first generation in modern China for whom "having stuff" wasn't only possible but a statement of progress. In the U.S., millennials and Gen Z make the trends, but the boomers move markets because the older generation has the money. In China, it is the young people who are moving consumer markets. It is a critical difference.

Yet there is double-digit unemployment among younger Chinese. There have been layoffs in the tech sector, and the economy's growth rate is slowing. How have these developments affected this generation?

In 1990, gross domestic product per capita was $300, implying dire poverty. In their lifetime, young Chinese adults have seen a 33-fold increase. GDP per capita rose three times in the U.S., and six times in India in the same period.

This Chinese generation is conscious that such growth isn't going to happen again. And they have now experienced their first recession [by China standards, as the economy's annual growth rate has fallen from double to mid-single digits.] Consumer confidence is falling off a cliff, and there is underemployment alongside unemployment -- that is, people taking worse jobs than those for which they are qualified. Yet, the government projects there are going to be 30 million unfilled factory jobs in 2025. Young people in China just don't want to make the world's shirts.

If they are unemployed and underemployed, how are they spending money and setting consumer trends now?

There was a crass attitude in China about what success looked like: Buy an apartment, buy a car, have a kid, then die. Even before the Covid-19 pandemic, younger people were questioning why they worked so hard and competed so feverishly, and what would make them happier.

In recent years, many of them have taken jobs in second- and third-tier cities and just gotten by, compromising on what they had believed was their dream life. Many are living off their parents in these less-expensive cities. This is the first generation for whom growth, progress, and more wealth aren't guaranteed. People are integrating this new economic reality into their worldview and adjusting their spending habits and expectations.

But they are still a force because of their scale: 400 million people. Economic growth isn't leaping as it did previously; things have slowed as much of China has already reached middle-class status. If Lululemon and Sam's Club can thrive in China during an economic downturn, that means a swath of the population is spending at globally influential levels.

What are younger people spending on, beside yoga pants?

A quarter to a third of China's population accounts for the Chinese consumer we think about. This consumer has three times the purchasing power of peers in India. These are demanding consumers, on whom new approaches to global retail, product design, and innovation are being tested. What this young generation wants -- and the products made for them -- will become what much of the world [eventually] buys.

Their parents were known as the "eat bitter generation" -- eating difficult things for long periods in the expectation that the next generation could have a better life.

Younger Chinese want experiences, such as travel. There has been a good amount of downgrading to lower-priced goods, but high-value luxury -- or high-quality goods with brand recognition that gives you a social bump -- also still does well. China is still the largest growth market for most luxury companies. It is more challenging than in the past, as these consumers are more discerning and "foreign" no longer means "better," but luxury companies may be more resilient than other global [consumer] companies.

Wellness is also a massive trend. Quality of food has become important, as well as supplements and exercise. Parks are full and people are engaged in more activities, often free, whether that is young people doing ballroom dancing or park Tai Chi.

How are Chinese companies dealing with tariffs and slowing economic growth?

Many companies in China have been preparing to live without the U.S. for a long time. Chinese companies excel in innovation and cost structure. When you ride in an electric vehicle in any price category in China, and then compare it to the limited EV options in the U.S. or classic autos in Europe that have been converted to EVs, there is no question the non-China products offer less quality and value.

There is an impulse among companies and policymakers to define success for a global company as having it arrive in your backyard. With China's shifting or limited access to Western markets, many analysts risk missing Chinese companies' success elsewhere. A lot of Chinese companies won't stop just because they can't enter or access Western markets. Plus, most of the world can't afford [U.S.] products.

What is the risk to other companies from Chinese companies' international expansion?

Chinese companies have to go global for growth, and now China's incredibly cutthroat culture is being unleashed on the rest of the world.

We often confuse innovation with invention. BYD's success isn't due to inventing a new energy vehicle, but to innovating in the field -- relentlessly, for a decade, and iterating with extraordinarily demanding customers. The company created something world-beating in quality, user experience, and value.

The easiest way to describe it is the difference between zero to one and one to 10. The U.S. thrives at zero to one, and China at one to 10. Every company in the world needs a China strategy, even if it doesn't compete in China, because for the next decade it will either be competing with Chinese companies or, because of tariffs or other restrictions, with Chinese ideas.

BYD's success and the dominance of China's electric-vehicle industry are well known. What other sectors could see a similar transformation in China?

Chinese companies solve Chinese problems. There was brutal pollution in Chinese cities. New EVs were necessary for quality of life. For semiconductor chips and AI, you need power. China is energy poor, so [there was investment in] battery technology and alternative energy sources.

Agricultural technology is going to be massive. China has 20% of the world's population and 10% of the world's arable land. Life sciences, pharmaceuticals, and medical technology will also be enormous because China's population over 65 years old will double from 2020 to 2050. If you make an affordable drug in China, why would someone in Mumbai, Mexico City, or Adelaide not take it? China solves its own problems first, then brings those solutions to the rest of the world.

What companies could be the next BYDs, in other industries?

Xiaomi is a great example of a company that makes technology that most of the world needs. It produces affordable smartphones, smart home devices, and connected electronics that bring high-end functionality to mass-market consumers. This is dependable, accessible tech with a blisteringly competitive value proposition for the everyman.

Shenzhen Mindray Bio-Medical Electronics and BeOne Medicines, which is focused on innovative cancer treatments, are making medtech and drugs under the price controls set in China to make healthcare accessible to a huge aging population. These companies are incentivized to solve China's problems and are run through the product gauntlet in China.

Which countries benefit from companies shifting production away from China?

It is Mexico's game to lose in the next decade. Chinese companies have started to invest in their former Mexican competitors to have access to the U.S. consumer. Vietnam is also going to be a winner.

Every manufacturer we have spoken with is trying to upgrade. If you go to industrial parks in Vietnam, the model they are working off of is China's industrial-park model, which is based off Singapore's industrial-park model. The Vietnamese are hiring Chinese managers at these factories who can pass on some of the best practices.

But we have also talked to American small businesses and manufacturers who are sticking with China [production], even with the tariffs. We often underestimate how good China has gotten at manufacturing skills and how much hard work has gone into the global management and ecosystem they have built. When you look at India, Mexico, or Vietnam, the gray area is still massive: Getting a cargo ship out of port might be as much about knowing the right guy or having a cousin who works in government as legal recourse. China used to operate that way, but those gray areas have largely closed over the past 10 to 15 years.

You have described a difficult backdrop for young Chinese, with the possibility that they don't end up better than their parents' generation. What is the risk of rising social unrest?

Investors focus on the top 25% [of the income distribution] -- the people who can move companies such as Alibaba Group Holding and Tencent Holdings. The government legislates toward the middle and the bottom -- the people who have the potential to cause political volatility.

The Chinese government is extraordinarily motivated to stay in power. The easiest way to do so is to keep the most people happy. I would bet on legislation aimed at pacifying a larger group of the Chinese population long before legislation stimulating that top quartile.

What would such legislation look like?

Health benefits? One easy example is [the property crackdown in the past few years] that caused a correction in the real estate market. The correction in real estate is one of the biggest signs of recognition [by the government] that if these tokens of success aren't more accessible for average people, there is long-term political risk.

Thanks, Zak.

Write to Reshma Kapadia at reshma.kapadia@barrons.com

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September 18, 2025 03:00 ET (07:00 GMT)

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