Germany sets pace for Chinese trade

Date: 07/10/04

UNTIL recently, it has been companies from America, Japan, Hong Kong, Taiwan and South Korea, which have been storming into the Chinese market.

With a few notable exceptions, such as Holland's Philips and Germany's Volkswagen and Siemens - which has a long history of operations in China and a 30,000 strong workforce there - EU-based firms have been dipping their toes into the Chinese market much more gingerly than their Asian or North American competitors (see table).

But is this about to change and if so, what are the implications for Europe?

A survey conducted by Deutsche Bank earlier this year paints a more complex picture of corporate Germany's approach to China than raw statistics might suggest. It also provides clues towards the attitudes of corporate Europe toward doing business with China.

Germany is now setting the pace for Europe's economic engagement with Beijing. Germany is China's biggest European trade partner and has overtaken the UK as Europe's top direct investor there. Even so, Bundesbank figures show that China still accounts for only a little more than 1% of corporate Germany's annual foreign direct investment, whereas other EU countries and the US still take 40% each.

But German investors are now "seriously neglecting" other Asian markets in China's favour. "China has outstripped all other emerging countries of Asia, including Singapore, Malaysia, India, Taiwan and the Philippines in terms of German investor interest," Deutsche Bank says.

There are signs too that Germany's medium-sized firms are now moving in. More than 1,500 German firms are currently represented in China, Deutsche Bank says. They are drawn in part by the prospect of selling to a local market of "over 76 million prosperous consumers", a market bigger than Germany's home market and one which could, Deutsche Bank suggests, "increase almost tenfold by 2015".

Companies around the world are being forced by fierce competition to focus on China's low-wage economy as a "low-cost assembly line". They have been encouraged by China's accession to the WTO, which enables them to benefit from the country's vast appetite for foreign products.

Deutsche Bank's survey of 23 large listed companies suggests that the stock of German investment in China could more than double by 2010 to €18-20 billion.

But attitudes amongst companies differ. One-third of the German firms surveyed say China is essential to their business strategy. Another third say it has little importance and another third say "yes, but not at any cost".

And the costs can be high. Deutsche Bank says that because EU companies have "lagged behind" their Asian and US peers in getting involved in this vast market, competition is particularly tough. They are also challenged by Chinese "hidden local champions exhibiting enormously fast technology advances".

Article identifies Germany as the EU country most engaged in FDI in China, based on a Deutsche Bank survey of 2004.