Business Confidence Survey German companies in China hold low expectations – Need for Conclusion of EU-China Comprehensive Agreement on Investment (CAI)
Beijing/Guangzhou/Shanghai, 12 November 2019 – The German Chamber of Commerce in China, in cooperation with KPMG AG Germany, today released its annual Business Confidence Survey. A key finding: while business sentiment is groaning under a slowing Chinese economy paired with uncertainty due to the ongoing US-China trade dispute, China remains an important market with valuable business opportunities for surveyed companies. However, market access barriers and regulatory obstacles continue to limit their growth potential in the Chinese market.
- Low expectations for 2019: only a quarter (27%) of German companies expect to reach or exceed their 2019 business targets
- Challenging regulatory environment: surveyed companies show stable investment plans, but market access barriers and regulatory obstacles continue to limit their growth potential
- Noticeable impact of trade dispute: 83% of the German companies operating in China feel either directly or indirectly affected by the US-China trade dispute
Gloomy Business Outlook with Small Signs of Hope
The slowdown of the Chinese economy combined with uncertainty due to the ongoing US-China trade dispute has left its marks. 83% of the German companies operating in China feel either directly or indirectly affected by the US-China trade dispute. The Business Confidence Survey shows: Business expectations have dropped to their lowest level in years, with only 27% of German companies surveyed expect to reach or exceed their business targets in 2019. Industry forecasts for 2019, in particular for Germany’s traditionally strong automotive and machinery/industrial equipment sectors, have significantly decreased. For the year ahead, surveyed enterprises report tentative signs of recovery with a slightly improved forecast for industry development. “2020 is likely to be characterized by uncertainty, stemming from an unresolved US-China trade dispute related with a decelerating Chinese and global economy”, said Jens Hildebrandt, Executive Director of German Chamber of Commerce in China - North China.
Investment Growth Needs Improved Market Access and a sound regulatory framework
China has taken a number of steps towards implementing reforms aimed at greater market openness and equal treatment of foreign entities in the Chinese market. Almost half of the surveyed companies positively acknowledge this commitment. However, the progress made is still far from a comprehensive systematic market opening on all levels. German and Chinese businesses would both profit from removing direct, and especially indirect, market access barriers thus enabling wider cooperation. According to the survey, two in three respondents report facing market access restrictions. Implicit market access barriers, such as obtaining licenses, disproportionate tendering processes, lack of participation in the development of industry standards as well as insufficient lead time when implementing new regulations challenge German companies the most. For around every second respondent, legal uncertainty/unclear regulatory frameworks, as well as technology transfer requirements are the top prioritized pressing hurdles.
German Companies Eye Various Opportunities
Despite these market access barriers, companies surveyed see various significant opportunities emerging in the Chinese market. “Top 3 opportunities are the growing domestic consumption, an increasing demand for foreign brands and quality as well as participation in innovations and digital technologies”, said Andreas Glunz, Managing Partner International Business of KPMG AG Germany. Two in three (67%) intend to further invest in China in the next two years and one in two of all surveyed companies would even likely or very likely increase their investments in China if greater market access was granted. “There’s a clear sign: The conclusion of a high quality EU-China Comprehensive Agreement on Investment (CAI) next year – with a scope beyond the usual investment protection dimension, covering also fair market access – would create new momentum and bring Sino-German economic relations into a new era”, advocated Hildebrandt.
Between 29th July and 12th September 2019, a total of 526 member companies participated in this year's German Chamber of Commerce in China Business Confidence Survey. This year, for the first time, the report was conducted in partnership with KPMG in Germany.
About the German Chamber of Commerce in China
The German Chamber of Commerce in China has currently more than 2,300 members in mainland China and is the official member organization for German companies in China. By providing up to date market information and practical advice, the German Chamber helps its members to succeed in China. It offers a platform for the Sino-German business community and represents its members' interests towards stakeholders including government bodies and the public. For more information, please visit: www.china.ahk.de
KPMG is a network of professional firms with around 207,000 employees in 152 countries. In Germany, KPMG is one of the leading auditing and advisory firms and has around 11,700 employees at 25 locations. Our services comprise Audit, Tax, Consulting and Deal Advisory. Legal services are provided by KPMG Law Rechtsanwaltsgesellschaft mbH. For all relevant business corridors between Germany and foreign countries or regions, KPMG Germany has implemented Country Practices. Each Country Practice consists of country experts who know the specifics and regulatory environment of these markets, regularly work in these countries and advise German and international multinationals on a day-to-day basis with their country- and corridor-related demands. The Country Practice China is one of the largest Country Practices at KPMG Germany.
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