Improved Business Expectations Despite Difficult Investment Climate and Continued Business Challenges - Business Confidence Survey 2017/18

Beijing, Guangzhou, Shanghai, 17th November 2017 – Slow cross-border internet speed and internet access restrictions, legal uncertainty, lack of qualified staff as well as increasing competition remain the biggest business challenges for German companies operating in China. Nevertheless, German companies evaluate the current economic situation and their business activity in China as positive. However, with regard to further investments they remain hesitant.

Positive Economic Outlook, Optimistic Business Expectations

German companies evaluate the current economic situation more positively than in 2016 and remain optimistic for the coming year. Especially machinery/industrial equipment evaluates 2017 as significantly more positive than last year. Respondents also consider the current business year as successful. Nearly two thirds of German companies in China expect to achieve or exceed their business targets in the current year. 75% of the companies expect their turnover to increase in 2018. Despite improvements in the current year and positive expectations for 2018, companies remain cautious regarding increasing investment and employment. China remains among the Top 3 markets for German companies operating in China, however, the Chinese market is not as significant to German companies as it was a few years ago.

Internet Restrictions Hamper Business Operations

Slow cross-border internet speed and internet access restrictions are increasingly causing difficulties for German companies. Two thirds of the respondents struggle with internet issues – a significant increase compared to previous years. German companies also report a great deal of uncertainty regarding the new Cybersecurity Law. The shortage of qualified staff and increasing labor costs continue to be the main challenges for the majority of German companies operating in China. In addition, nearly half of German companies have encountered legal or regulatory obstacles in the past year. Custom issues were the most prominent followed by capital transfer and cross border payment issues, licensing requirements and procedures for products and services, intellectual property rights protection concerns, as well as market access.

Cautious Investment Activity

German companies remain cautious regarding investments at new locations in China. A quarter of the respondents plan to invest at new locations within the next two years. However, the share of those not planning investments at new locations in China has reached more than 50% for the first time. One in four companies cite regulatory reasons for not increasing investment.

Call for Tangible Economic Reforms

The economic reforms of the last years tend to be welcomed by German companies, but the initial enthusiasm has faded even more. In hindsight, the majority of respondents did not observe any notable impact of the reforms on their business activities. More than half of the German companies have little or no confidence regarding the further opening of China’s market. The State Council’s Document No. 5, published in January 2017, is virtually unknown despite the fact that it is one of the major recent documents introducing reform measures to further promote foreign investment. More than one third of the German companies expect a positive effect on their future business regarding the Belt and Road Initiative (BRI). 30% of German companies are active in or considering to engage in BRI projects. For those who are not, a lack of suitable projects and insufficient information are stated reasons not to engage.

This year’s Business Confidence Survey was conducted between 21st August and 29th September 2017 by the German Chamber of Commerce in China among German companies in China, 423 valid responses were collected.

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