The 2021/22 Business Confidence Survey indicates that German companies continue to place confidence in China as an engine of growth and are making long-term bets on the country. To this end, many German businesses are localizing technical and operational expertise, as China’s zero-COVID policy has resulted in continued travel restrictions. Rising prices of raw materials, energy, and labor; enforcing intellectual property protections; and perceived difference in treatment by local officials when compared to domestic firms are among the top concerns expressed by the German Chamber’s survey respondents.
Amid an ongoing pandemic and the gradual restructuring of global supply chains, the future of foreign business in China is full of unanswered questions. Despite the uncertainties, German companies in China are still confident about doing business in the country in 2022, as captured by the latest Business Confidence Survey 2021/22 released by the German Chamber of Commerce in China.
Between October 14 and November 3, 2021, a total of 596 member companies registered with the German Chamber of Commerce in China participated in the annual Business Confidence Survey. Those surveyed account for 29 percent of German Chamber’s member companies.
33 percent of all respondents were in the machinery/industrial equipment industry and 21 percent were engaged in the automotive sector. 27 percent of the respondents worked in research and development (R&D), an area regarded as a key driver for China’s continued development and technological growth. 70 percent of the respondents have production bases in China.
German firms are considered to be among the most important foreign entities investing in China. There were about 5,000 German companies operating in China, with investments amounting to US$3.68 billion in 2019 (a 139 percent increase compared to the previous year) and rising to US$840 million during the third quarter of 2020. (Read more: Business Opportunities for German Investors in China.)
In a nutshell, the business confidence survey reveal the following trends:
Overall, the results of the survey show that confidence in the growth of the China market remains strong and opportunities still exist. At the same time, German companies are trying to stay nimble by developing new strategies in response to continuing and new challenges.
The reflection “business is still good, but until when?” was the theme of last year’s surveys and it appears to be a question that is still relevant in 2022 as sensitive situations, such as the coronavirus pandemic, decoupling between East and West, and supply chains disruptions, bring a feeling of uncertainty. This has been reflected in the survey’s results, as many companies envision the situation ‘as not improving in the near future’.
It must be said, however, that despite these concerns, many of the German company respondents experienced turnover and profit growth in 2021 and expect to experience the same in 2022. (63 percent and 48 percent, respectively, in 2021 and 60 percent and 41 percent, respectively, in 2022.)
China continues to be Germany’s most important trading partner for the fifth consecutive year, with a trade volume (import and export) of EUR 213.2 billion between the two countries in 2020. A majority of German companies regard China as a key market for their industry.
The willingness to invest remains strong and 71 percent of German companies plan to invest in China in the next two years, in manufacturing and R&D.
As important as China continues to be, the survey respondents agree in large part that there is a growing need for risk and compliance management, with 40 percent of the surveyed companies being indirectly or directly affected by the US sanctions on Chinese businesses or individuals.
Intellectual property rules enforcement continues to pose challenges for German companies in China.
The preferential treatment of domestic competitors against the background of a political focus of the Chinese economy on itself, has become a major challenge, faced not only by Germans, but the overall foreign community alike.
Opportunities in the Chinese economy are expanding as the government continues to prioritize growth and development of high-tech manufacturing, IT, logistics, robotics, automotive, healthcare, and financial services industries.
In addition to this, raising the investment attractiveness of the central and western regions of China is a top priority for the government; foreign investment in these regions will be welcomed and benefit from subsidies and reduced ‘red tape’.
German companies having expertise in the sectors outlined above can definitely make a difference and continue to solidify their presence in China, especially if they choose wisely where to set up their operations within the country. For example, choosing to set up in areas demarcated as Free trade zones and Technological Parks, where conditions for businesses are liberalized and more incentives are offered as compared to normal business areas.
The above answers continue to reveal a tendency that was already expressed in the American and European Union Chambers’ business confidence surveys in 2021.
While uncertainties are many, judging from the continuous growth of German investment in China, particularly in cities where foreign investment was traditionally less prevalent – such as Chengdu and Chongqing – it is evident that German companies are optimistic about their long-term outlook in the country.
From the Chinese side, this commitment is welcome and many government officials have publicly appreciated the importance of German investment in China as a driver of Chinese growth.
As long as German companies continue to see an upward growth and profit trend of their investments in China and diplomatic incidents over sensitive matters are kept to a minimum, one can assume that the next decade will continue to be good for German companies in this country.
Dezan Shira and Associates professionals have a deep understanding of China’s business and regulatory environment, and provide comprehensive market entry and operational advisory services, including filing services for trademarks, copyrights, and patents. Our advisors use their exceptional expertise in legal, accounting, technology, and market entry intelligence to offer you a one-stop solution. If your business requires assistance in China, you can reach out to our team by sending an email to China@dezshira.com.
China Briefing is written and produced by Dezan Shira & Associates. The practice assists foreign investors into China and has done so since 1992 through offices in Beijing, Tianjin, Dalian, Qingdao, Shanghai, Hangzhou, Ningbo, Suzhou, Guangzhou, Dongguan, Zhongshan, Shenzhen, and Hong Kong. Please contact the firm for assistance in China at firstname.lastname@example.org.
Dezan Shira & Associates has offices in Vietnam, Indonesia, Singapore, United States, Germany, Italy, India, and Russia, in addition to our trade research facilities along the Belt & Road Initiative. We also have partner firms assisting foreign investors in The Philippines, Malaysia, Thailand, Bangladesh.
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