Business prospects
German companies in China are more pessimistic than ever before
German companies are coming under increasing pressure in China. At the same time, the Chinese economy is on shaky ground. What’s next for companies from the Federal Republic of Germany in the Far East?
Because of the economic problems in the country and numerous hurdles, German companies in China are more pessimistic than ever about the near future. As the current business climate survey by the German Chamber of Commerce Abroad (AHK) shows, only just under a third of the companies surveyed expect positive developments in their industry in the coming year – a historic low. According to the advocacy group for German companies in China, 29 percent even expect a decline.
“In general, we have to say that the mood is not good, especially in the short term,” said the managing board member of the AHK in East China, Maximilian Butek, in Shanghai. There are therefore a certain number of companies that said we will stop investing for the time being.
The world’s second largest economy is a very important sales market for many German companies, in which they have done good business for years despite growing competitive pressure. However, for 56 percent of the companies surveyed, weak demand in China is now the biggest problem, followed by price pressure (52 percent). According to AHK, a new trend is to secure one’s own competitiveness through increased localization. This time, significantly more companies (40 percent) stated that they operate more independently of their German headquarters.
The principle is to produce in China for China and thus respond to requirements in the Chinese market. Specifically, the companies stated that they wanted to work with Chinese companies and expand research and development in China.
Loss of demand is a big problem
The country, ruled by the Communist Party, has been experiencing a severe real estate crisis for years, which is further fueling the decline in demand. This is because many people in China invested their savings in real estate, which lost value during the crisis. This also depressed consumer sentiment. “China is trying to transform from a supply-driven to a consumption-driven economy,” Butek said. But there is a lack of consumer trust. China has not yet found a good solution to solve these problems.
The 546 companies that took part in the survey in the fall out of around 2,100 AHK members in China are also feeling this. According to the AHK, a total of around 5,000 German companies are active in the People’s Republic.
On top of that, China is threatened with a trade conflict with the new US administration of President Donald Trump. Beijing is negotiating with the EU to avert additional tariffs on electric cars. In a bitter price war, China’s manufacturers produce more vehicles than the market can bear, make next to no profit and therefore want to expand abroad.
Chinese prefer to buy from Chinese
China is also placing more and more value on products from domestic companies. For the first time, almost a third of those surveyed cited the trend that people are more likely to buy from Chinese companies as a main challenge, the AHK analyzed. At the same time, entrepreneurs have been complaining about problems that have been known for years, such as the violation of intellectual property rights, the preferential treatment of Chinese companies and difficult access to public tenders.
Despite preferential treatment and price advantages for Chinese competitors, German companies have long been drivers of innovation in their industry. But the pressure is growing. Eight percent of those surveyed already see companies from China as leaders of innovations in their sector – a trend that has been increasing since the beginning of the corona pandemic.
German companies are not giving up
But the Germans don’t want to give up: According to the AHK, 92 percent of those surveyed are not thinking about withdrawing from China. However, just over a third do not want to continue investing in China for the time being. According to Butek, this is because this group has already made many investments in previous years. At 51 percent, more than half of the companies want to continue investing money in the location, but this share also fell compared to previous years.
dpa
Source: Stern
