China Business Blog - Aggregated China Business Blogs
Aggregated China Business Blogs
German firms still upbeat despite downturn
Aggregated Source: Shanghai Daily: Business

AFTER 16 years in China, Titus Freiherr von dem Bongart, chairman of the German Chamber of Commerce in Shanghai, said he is deeply impressed by the sweeping changes that have transformed the country. To him, the current economic slowdown is not affecting the optimistic long term perspective.

"Although many players are concerned about China's current economic performance, it remains one of the world's fastest-growing economies," Bongart told Shanghai Daily in an exclusive interview. "Most German companies in China are optimistic that they will meet their business objectives this year."

The German Chamber of Commerce officially represents German companies in China, comprising some 2,200-plus members among around 4,800 German businesses here. The membership roster includes titans such as Siemens China, Volkswagen China and BASF.

The chamber assists companies by providing up-to-date market information and practical advice. Founded in 1999, it also offers a platform for liaison among the German business community as well as Chinese government and business communities.

"China would not be China if there were no changes," Bongart said. "Overall, looking at the economic development from a global perspective and listening to what we hear from our members, I believe China is still performing reasonably well."

In the first half, China's gross domestic product expanded 7.6 percent from a year earlier, close to the government target of 7.5 percent for 2013, which is usually considered a bottom line.

Still, the pace of growth has eased for two consecutive quarters, amid deepening industrial restructuring, sluggish markets abroad and a rebalancing of the economy toward consumer spending.

The moderation has triggered concerns among some global investors that the economic beacon of the world is headed for a hard landing that will hurt economies everywhere.

Amid all the concern, German companies in China remain comparatively optimistic.

According to a recent survey on business confidence by the chamber, 47.7 percent of 502 members who responded said they see the outlook for the remainder of 2013 as either improving or significantly improving. Another 38.3 percent said their outlook is neutral. Only 14 percent expressed pessimism about prospects.

Meanwhile, 79 percent of the respondents said they expect to reach at least most of their business targets for 2013. The portion of companies that said they are not likely to achieve targets decreased by 11 percentage points from 2012.

"German companies are not blindly optimistic," Bongart said. "They see opportunities in China's process of upgrading to a more technology-driven industry and more innovation-driven growth. Most of the companies are here for the long term, not for a one-shot cash in."

According to the survey, about every second German company in China plans to increase its investments here, with machinery, automotive and chemical industries being the most attractive sectors. However, the German production for the European and the US markets has decreased markedly in the past year.

According to the Ministry of Commerce, German direct investment in China, which excludes securities investments, jumped by 44 percent in the first half of 2013 to US$1.29 billion compared with the same period in 2012.

By contrast, the overall inbound foreign direct investment only increased by tiny 4.9 percent. This underlines China's position as Germany's biggest sales market outside the European Union.

Underscoring those figures, Premier Li Keqiang made Berlin his only European Union stop during his inaugural trip abroad in May. He held talks with German Chancellor Angela Merkel, and the two leaders pledged closer ties.

Rosy talk aside, German companies still face challenges in China.

The chamber's survey highlights difficulties in recruiting and keeping qualified staff, and in coping with rising labor costs.

Other business hiccups, according to the survey, are bureaucratic red tape, corruption, intellectual property theft, higher commodity prices, slow internet speeds, currency swings and domestic protectionism.

About 94 percent of the survey respondents noted competitive pressure from Chinese companies, and 68 percent said the pressure is growing.

"It is not a bad development to see Chinese businesses becoming more competitive as long as they play by the rules," Bongart said. "Under such pressure, many German companies have raised research and development in their Chinese units."

A part of the survey focusing on innovation found that German companies are not only applying for patents in China, but also using them to develop "new or significantly improved solutions," Bongart said.

Q: How do you view China's industrial restructuring, which led, in part, to the economic slowdown?

A: China's economy did not grow as fast as some experts had expected but still is in the growth corridor the government has set as a target. At the same time, I still believe there is a strong demand for German products and services in China. In particular, China wants to accelerate the growth in a few strategic industries, like machinery, automobiles and chemicals. That provides more opportunities for German companies because we have the know-how that's needed. That is also why many German companies are choosing to increase their investment in research and development in China to meet the demand of a rapidly maturing local market.

Q: What should China do to improve intellectual property protection?

A: There are still cases of counterfeit products or counterfeit brands, which are a problem for German companies and where a strong signal by the government is required that these cases are not tolerated. On the other hand, my personal opinion is that as China's economy matures and more Chinese companies develop their own competitive brands, these kinds of problems will become less important in the future.

Q: What's new in German investment in China?

A: It is increasingly evident that more small and medium-sized German companies are choosing to invest in China. The majority of our survey respondents are SMEs, and you can reasonably say they are fairly optimistic. At the same time, overall, German companies invest increasingly in R&D activities in China.

Q: Do you think the recent trade dispute between the European Union and China over solar panels will affect German investment in China?

A: There are different points of view. But as the German Chamber of Commerce in China, we hope it will all be settled as soon as possible and we can avoid such cases in the future.

Original URL: Click here to visit original article
Copyright Shanghai Daily: Business