**3.3 The new pressures and constraints**

A high level of protectionism and regulatory complexity are characteristics of the institutional context in China, although the inflow vast amounts of FDI would suggest a more deregulated environment. In fact, China's sweeping reform and transformation process has been limited to the economy and had little bearing on the political landscape [53]. As a consequence, MNCs have been highly constrained in their pursuits to foster innovation amid the lack of basic legal certainty [54]. As a matter of fact, there have been waves of MNC market withdrawals and factory/office closures involving global players such as Yahoo, Microsoft, Adobe, Adidas and Panasonic [55]. In this context, multisport entrepreneur and publisher Dan Empfield [56] explained that 'there was a stampede into China to make bicycles beginning in the mid-1990s; and now there is a stampede out of China. Brands today are looking to make bikes anywhere … as long as it's not China.' The damage is not limited to the manufacturing or technology sector though. In the financial services industry, venture capital firm Sequoia had to split off its China unit amid rising tensions and Beijing's crackdown on international professional services firms [57]. These high-profile cases send warnings to Western firms doing business in China. However, many departures may arguably be rooted in MNCs' skewed view of the business environment and the local institutions [58]. One indicator of firms' incapacity to adapt to the institutional context is the number of public crises that has hit numerous blue-chip companies, inflicting considerable reputational and financial harm. Longitudinal research spanning from 2000 to 2011 by the China Europe International Business School (CEIBS) found that in excess of 25% of well-known MNCs in China were subjected to public affronts [59]. Foreign market participants may have overestimated their capacity to manage and manipulate the host-country context while they may have underestimated the firepower of their hostcountry's arsenal of interventions. Despite the fact that the the Chinese market system is evolving, there is little doubt that China is a political economy that the local institutions can exert overriding authority over MNCs [60]. As such, doing business in China is subjected to a myriad of state interventions and political agendas [61]. Specifically, China's institutional environment has been portrayed as 'force within a cell of regulations' [62]. It also shows that ideology matters: While studying today's capitalism is important, the tenets of Marxism remain true [63]. Several political initiatives have put MNCs as a disadvantage including 'indigenous innovation' (zìzhŭ chuàngxīn) by the 2003–2013 Hú/Wēn government and 'innovation-driven development' (chuàngxīn qūdòng fāzhǎn) by the subsequent Xí/Lĭ government. These industrial strategies focussed on protectionism enacted by state procurement policies [64]. Despite the fact that stability is of fundamental importance to China, the country's institutions and policies have been altered dynamically. MNCs that want to remain in the market need to be clear-eyed about the fact that China's legal system promotes nationalistic themes singling out Chinese and non-Chinese investors [65], as manifested in regulations governing Sino-foreign joint-ventures (JVs). In the institutional landscape of China, two different types of sentiments with respect to foreign-invested players can be identified. The streams equally put China's national interests in the centre of their thinking. One group reverts to technocratic protectionism seeking to make China inhospitable for MNCs and the domestic economy more shielded. The other group favours a pragmatic

market-orientation seeking to make China more welcoming for MNCs and the domestic economy more competitive. Furthermore, with respect to handling the economy, China has previously pursued a 'comprehensive well-off society' (quánmiàn jiànshè xiăokāng shèhuì) based on a Confucian near-ideal state, and has practiced a hands-off approach to many sectors which have minted billionaires, a celebrity culture and giant companies at a breath-taking pace. However, under the current administration, China aims at rectifying perceives socioeconomic issues cultivating a 'patriotic atmosphere' for the industries, regardless of what people and companies/investors may want. The central government has launched sweeping crackdowns in many once-freewheeling sectors, including social media/e-commerce (i.e. Alibaba Group, Meituan, Tencent), online gaming (e.g. NetEase), cryptocurrency (i.e. bitcoin), education (i.e. New Oriental), online finance (e.g. Ant Group), ride hailing (e.g. Didi Chuxing), property (e.g. China Evergrande Group) and health care (i.e. unregistered cosmetics). Similarly, the government has recently embarked upon a sweeping clampdown impacting a wide spectrum of sectors creating volatility and uncertainty for newly established firms and seasoned incumbents alike [66]. China's far-reaching interventions are reportedly not aimed at choking private sector growth or decouple from the US/international system. Instead, the goal is to help consumer-facing technology platforms in fulfilling their mandate of promoting common prosperity or smoothing social disparity. This major push brings the Chinese State front-and-centre into all elements of its citizens' lives and company's strategic agendas. Major downsides to be considered by MNCs relate to China's reclassification as a political threat rather economic partner, declining public sentiment towards the country in MNC home nations, the multi-pronged regulatory crackdown on various industries (especially technology and professional services), alongside the risks related with an ageing population and associated dependency ratios and skill shortage. In addition, China is one of the most exposed geographies in terms of climate change. In terms of competition, China's local sectors have aggressively moved from a strategy of imitation to a strategy of innovation [67]. China's underthe-radar but globally competitive innovators disrupt along the entire configurational spectrum including products/services, processes and business models. The economic and institutional shifts described makes MNCs' engagement in China challenging, and potentially unfeasible. Against this backdrop, the focal point of strategic management research lies in MNCs' strategic answers to these institutional pressures.
