As of: January 28, 2024, 10:19 a.m
By: Christiane Kühl
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VW production in Qingdao: Many German companies want to continue investing in China despite the weaker economy.
© VCG/Imago
German companies continue to do business in China, and more than half want to invest in the near future.
But enthusiasm for China has given way to cool competitive considerations.
Optimism about China has risen again.
German companies have no illusions about China's short-term economic development;
2023 was a disappointing year for many.
And yet 55 percent of companies want to continue investing in the People's Republic.
This was the result of the business climate index of the German Chamber of Commerce (AHK) in China presented on Wednesday in Beijing.
83 percent see the Chinese economy in a downward trend.
But at least 79 percent still expect continuous growth in their own industry over the next five years.
91 percent want to remain loyal to China;
54 percent even plan to invest in the People's Republic in the next two years.
It's a small sign of improvement - even if the euphoria of the years before the pandemic is not currently noticeable.
In the surveys between 2018 and 2021, around two thirds said they wanted to expand their investments.
Planned investments in China: Competitiveness is a central issue
“The market may grow more slowly and there could be more bumps in the road in the future,” said AHK CEO Ulf Reinhardt.
“But China is such a large market that even small growth is significant due to its sheer size.” In 2023, China’s economy grew by 5.2 percent.
Almost two thirds of those who see an economic downturn believe that it will only last one to three years.
Six percent even assume that China's economic crisis will be overcome within this year.
It is still questionable whether the old enthusiasm will return - if only in view of the de-risking debate in Europe and the geopolitical tensions.
In addition, 54 percent of the companies surveyed believe that China's attractiveness as an investment location is generally decreasing.
79 percent of companies willing to invest said that investments were necessary to remain competitive in China.
“We feel that investments are driven by the need to stay in the game and not fall behind,” Reinhardt said.
German companies in China: Complex mood
It is a complex mood in the German business community that this year's AHK business climate index reflects.
The optimism of many companies in their own industry is faced with many challenges locally, including increased competition from local companies and the continued unequal market access in many industries.
“Last year was a reality check for German companies in China,” commented Reinhardt.
However, the survey did not provide precise data on investments or plans.
“There is anecdotal evidence that things are shifting.
We see that corporate headquarters are trying to minimize their risk, but are still making investments here,” said Jens Hildebrandt, delegate of German business in Beijing.
“Are these investments on the same scale as planned three years ago?
“I don’t know.” But if a company headquarters invests in India and China, it can be assumed that the projects will be spread across several countries.
This trend among Western companies is confirmed by China's data: Foreign direct investment fell by eight percent to 1.13 trillion yuan (146 billion euros) in 2023, as the Ministry of Commerce announced in Beijing on Friday.
Despite this decline, the investment volume is still “the third highest in history”.
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In addition to diversifying into markets like India or Vietnam, many companies are also doing something opposite: they are localizing ever larger areas in China itself. 47 percent of the companies planning new investments said they were doing so because of demands from their business partners higher local shares of production or development.
And 28 percent of all respondents emphasized that greater independence from the headquarters in Germany helps to take advantage of local innovation opportunities.
In general, from the perspective of those surveyed, innovation potential is the greatest driving force for the future attractiveness of the Chinese market.
37 percent see China increasingly as a market for innovations.
Almost half cooperate with their Chinese partners and customers on innovations.
Five percent said that Chinese competitors were already innovation leaders in their industry - more than ever before in an AHK survey.
AHK demands fair competition conditions in China
This is also why the AHK called on the Chinese government to finally create a level playing field for everyone.
“Most Chinese companies have little reason to fear competition,” says Reinhardt.
Many of those surveyed also still complain about legal uncertainties or strict rules on cybersecurity and data transfer.
More than half see themselves at a disadvantage when it comes to public contracts - due to the preference for state-owned companies, a lack of transparency in tenders or the exclusion of foreign companies from certain projects.
But there is also a bit of hope.
According to Hildebrandt, there is “almost a free market” in some industries – for example in some segments of mechanical engineering or many consumer goods.
Here “the innovators and agile companies win the day.
And that’s what we want for German companies here in China.”