Business Confidence Survey 2018/19 of the German Chamber of Commerce in China: Dampened business outlook and challenging regulatory environment

Beijing/Guangzhou/Shanghai, November 27th, 2018 – Subdued business prospects and a challenging regulatory environment shape the business climate of German companies operating in the Chinese market. Challenges such as bureaucracy and administrative hurdles, legal uncertainty and unclear regulatory framework conditions, as well as slow and limited internet persist. Nevertheless, China remains an important market with good business opportunities for the majority of German companies.

  • Business in China satisfactory of German companies – cautious outlook for 2019
  • German companies require a reliable and transparent regulatory environment in uncertain times
  • Confidence regarding market opening dampened by implementation deficit of announced reforms

Stable assessment of the current economic situation, cautious outlook for 2019
Merely 40 percent of German companies rate the current development of the Chinese economy as positive - 14 percentage points less than in 2017. And the less optimistic outlook of German companies stretches into 2019: Almost 30 percent expect a worsening in the development of the Chinese economy. A similar picture can be observed on industry level: Around half of German companies in China are still satisfied with the growth potential in its primary market segment. Nevertheless, the three largest German industries in China - machinery/industrial equipment, automotive industry and business services - are less optimistic about the year 2018 and see their last year’s expectations about their industry development not fulfilled. For 2019, no significant improvements are forecasted. However, China still ranks among the top three markets for most companies. The share of those considering China as Top-1 market increases compared to last year and two thirds of respondents plan to further invest within the next two years.

German companies require a reliable and transparent regulatory environment
Within the field of tension between enormous market opportunities, a challenging regulatory environment and growing competition, German companies are still facing various challenges in the Chinese market: Bureaucracy and administrative hurdles, legal uncertainty and the unclear regulatory framework, as well as slow and restricted internet access are rated by the respondents as the most pressing regulatory challenges. For a majority of companies, increasing labor costs as well as finding and retaining qualified staff remain major business challenges. Around 30 percent of those that do not plan further investment within the next two years, indicated the lack of regulatory transparency, predictability and impartiality as reasons for that. China’s “Made in China 2025” strategy is a good opportunity for joint business development, but non-transparent framework and subsidy conditions as well as the preferential treatment of Chinese companies hamper the dynamic cooperation between German and Chinese partners. Continued efforts towards a reliable and transparent regulatory environment can provide a more favorable investment climate so that existing market opportunities can be further exploited.

Implementation deficit of announced reforms
China's opening began 40 years ago, which has led to an unprecedented and successful economic development for the benefit of foreign and Chinese companies alike. Around 50 percent of the surveyed companies believe in the Chinese government's commitment to further open the market. However, the market opening rhetoric in previous months has fallen short of the expectations of German companies in China: around one in two respondents rates the Chinese government's efforts in the areas of economic reforms, the creation of a level playing field for foreign companies, the reform of state-owned enterprises and the liberalization of the financial sector as insufficient. Roughly 45% of the surveyed German companies in China are dissatisfied with the efforts on the rule of law and the improvement of the regulatory framework.

Between August 27th and October 22nd, a total of 423 German companies participated in this year's Business Confidence Survey of the German Chamber of Commerce in China.


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