German Companies Noticeably Reserved about Further Expansion of their China Business
Beijing, Guangzhou, Shanghai, 29th November 2016 – German companies in China evaluate the current economic situation as one of the most difficult within recent years. However, the overall outlook for the coming year is more positive, reflecting the belief of German companies in the Chinese market and its recovery. On a subjective level, a third of German companies feel less welcome in China than before. Investment intentions by German companies at new locations within China are reaching a 3-year low. This year’s Business Confidence Survey was conducted between 1st and 28th September 2016 by the German Chamber of Commerce in China among German companies in China, 426 valid responses were collected.
No Plans for Leaving despite more Difficult Economic Situation, more Optimistic Outlook for 2017
The results of this year’s survey show, that German companies in China experience 2016 as one of the most economically difficult of recent years. Accordingly, companies evaluate their increases in turnover and profit more cautiously than before. Also, the share of companies that expanded their investment and employment this year is at the lowest level since 2012. Furthermore, one in four companies expects decreasing profits in 2016. The machinery industry is particularly affected. However, for 2017 German companies are more optimistic and expect a more positive economic development and a stronger growth of their company’s turnover and profit. An overwhelming majority of German companies still has no plans to leave China.
HR Challenges Leading, Domestic Competition and Legal Uncertainty Increasingly Pressing
Increasing labor costs and shortage of qualified staff remain the main challenges of the majority of German companies operating in China. China’s economic slowdown and domestic competition cause increasing concerns among German companies, while growing legal uncertainty and unclear regulatory frameworks move up in the rank of major business challenges. Internet speed and access, as well as protection of intellectual property also have a negative impact on German companies’ business operations.
Less Enthusiasm Regarding Economic Reforms, Investment Activities Decrease
German companies have become more hesitant regarding their investments. The share of companies planning investments at new locations in China has reached a 3-year low. China’s economic growth and reforms continue to be perceived as positive factors; however the initial enthusiasm observed in previous years has gradually decreased. Less than half of the companies expect positive impulses of economic reforms on the investment climate.
Positive Impulses Coming from „Made in China 2025“
In a special part of the survey, German companies with production facilities in China were asked about the status and potential of Industry 4.0 for their local operation in China. A clear majority (83%) sees the suitability of implementing Industry 4.0 within their own production processes as a given. 14% already state intensive or partial use of Industry 4.0. related technologies. One in two companies is currently implementing or planning for it. The automotive industry is furthest ahead in the development towards Industry 4.0. The impact of the “Made in China 2025” strategy is also evaluated positively. More than half of the German companies with production facilities in China regard its impact as positive for their company’s operations over the next five years.