Tuesday, 24 September 2019 02:29 GMT

German firms adapt to China's changing market

(MENAFN - Asia Times) German Chancellor Angela Merkel was received in Beijing last week with a large business delegation for her 12th visit to China — a record for any Western leader — indicating how important the relationship between the world's second and fourth biggest economies remains, CGTN.com reported

Some 5,000 German companies currently operate in China, according to the German Chamber of Commerce (AHK).

These include big names like automakers Volkswagen, Daimler and Mercedes, industrial giant Siemens, chemical producer BASF and Deutsche Bank.

But small and medium-sized enterprises (SMEs) have also flocked to China over the years, lured by low labor costs and a Chinese market with huge potential, the report said.

"If you could just get a 10-percent market share, you would be more than busy for the coming five years. And for a small- to medium-sized company, that may already be all the incentive they need, especially if worldwide, the economy is slowing down," Kerstin Kaehler, manager of the German Enterprise Centre Qingdao (GECQ), told CGTN.

The GECQ was established three years ago to host German as well as non-German SMEs and offers them support in setting up business and navigating the system in China.

In a sign of just how diverse Germany's presence here has become, the GECQ's tenants include a water treatment company, agricultural machinery firms, an architectural bureau building a passive house nearby and another company looking at ways to turn waste into biogas.

No longer is it only carmakers, engineering and manufacturing firms that set up shop here: as environmental concerns become ever more a priority worldwide, China too has become a prime location to develop sustainable projects.

Meanwhile, Germany has long enjoyed a stellar reputation in China.

"There is a sometimes surprisingly strong positive bias towards German quality… that is still quite entrenched in the Chinese consumer mindset," noted Kaehler.

Whether it is cars, machinery or even cosmetics, products bearing the black-red-gold flag still stand for quality, durability and reliability, the report said.

Even the 2015 Volkswagen emissions scandal did not dampen Chinese enthusiasm for the brand, and the company remains the clear market leader in terms of sales.

German Chancellor Angela Merkel was received in Beijing last week with a large business delegation for her 12th visit to China — a record for any Western leader. Wire photo.

One challenge on the horizon for German and other foreign businesses will be China's new company social credit system, which will come into force next year and will monitor businesses' behavior and adjust their score according to that.

"That is going to, in the long run, I think, be an advantage in making the playing field more level for everyone by ensuring compliance. But in the short term, it is going to need a lot of extra work, a lot of extra resources and quite a bit of dedication to fully understand what is going to happen," according to Kaehler.

Last month, the AHK warned that with less than a year to go before it is implemented, "almost seven out of 10 German companies in China are not familiar with the system, its mode of operation and its objectives in the business context."

Still, despite such challenges and talk of slowing economic growth, German companies are here to stay.

"The step to come here is so big that… once they have committed they usually have really calculated everything three to five times, have thought it through and finally made their commitment and then they tend to stick to it," and this is especially the case with SMEs, said Kaehler.

Her comments were backed up by a flash survey by the AHK in April that found that 60% of German businesses in China were experiencing an economic slowdown. "Nevertheless, around two-thirds of surveyed companies will either not plan adjustments in turnover, profit, investment and employment or even intend to increase their forecast in these areas," it noted.

Technology company Bosch opened a new plant in Wuhu, Anhui Province last year, Siemens opened an R & D Center in Chengdu, Sichuan Province in May, and Volkswagen has said it wants to produce at least half its electric cars — about 11 million vehicles — in China by 2028.

Rather than quitting, companies have adapted their strategies and priorities.

"This is one of the times where the size of China does play a role, it is simply very difficult to find another country on earth where you have a workforce this big and by now a lot more sophisticated than it was 30 years ago, that is still quite flexible and can react to momentary demand," noted Kaehler.

This need to constantly adapt has put pressure especially on tech and engineering companies. Once the world's factory, China is now at the forefront of technologies like electric cars and 5G.


German firms adapt to China's changing market


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