AHK Policy Barometer

Our Policy Barometer provides quarterly economic policy insights for German companies in China. It offers updates on current economic policies, how they impact German businesses, and our evaluation of them. We also provide information on our advocacy efforts regarding these policies with both the German and Chinese governments. In addition to this, the Policy Barometer includes valuable resources and practical tools. The full version of the Policy Barometer is exclusively available to members of the German Chamber and is delivered directly via email.

Vol. 4/2024

Ramped up Chinese Foreign Trade Toolbox

Status Quo：China’s foreign trade toolbox has evolved rapidly in recent years to safeguard its trade and to address the impacts of foreign sanctions. Most recently, China announced the export control of dual-use goods regulations, targeting equipment, software, and technology with both military and civilian applications after the export control law came into effect in 2020.

Pulse Check：Many German companies have a global footprint and need to closely check if they answer trade compliance requirements in the Chinese market. Oftentimes, they have to balance (contradictory) compliance requirements with Chinese regulations alongside mandates from their home country and sanctions imposed by other Western nations – all at the same time.

Shift in Language Signals More Measures for Boosting the Economy

Status Quo：The central government is taking more detailed steps to implement the “24 measures” to boost foreign investments, including market access for foreign companies. A new version of the "negative list" for foreign investment was issued in September, completely removing restrictions on foreign investment in the manufacturing sector. Authorities also announced relaxations in the healthcare sector, for example allowing wholly foreign owned hospitals to be established in nine core cities.

Pulse Check：On the one side, the two remaining manufacturing items that were removed have not been relevant for German businesses before anyway. Therefore, with the shortening of the list, there will be no change for German businesses. On the other side, tangible progress has been made in the service sector offering potential new opportunities.

Enhancing Consumer Demand Through Trade-in Programs

Status Quo：In December 2024 two high-level meetings, the Politburo meeting and the Central Economic Work Conference (CEWC), took place to discuss economic work priorities for 2025. The Politburo meeting signaled a slight shift from the 2023 emphasis on stability by calling for adopting more active fiscal policies and moderately loosening monetary policies. The readout from the CEWC indicated that the Chinese government became intensely aware of current economic difficulties and aims to proactively tackle the challenges in 2025.

Pulse Check：Our Business Confidence Survey (BCS) 2024/2025 results show that 56% of respondents identify weak demand in China as one of their top three leading business challenges. A significant 60% of surveyed companies report a deterioration in economic conditions in 2024 compared to the previous year. Looking ahead, 33% expect the economic situation to worsen further in 2025.

Q4 Financial Support Initiatives Fall Short in Stimulating Demand

Status Quo：Several significant financial policies have been announced in the fourth quarter of 2024. These include monetary measures such as reducing the required reserve ratio for financial institutions and fiscal policy initiatives, such as a RMB 10 trillion support package to tackle hidden debts from local governments.

Pulse Check：The measures aim to boost business confidence and stabilize the property market. German companies would have hoped for more fiscal stimulus that increase the confidence of consumers and the private economy.

Draft Definition of Domestic Product Puts Non-Localized Companies at a Disadvantage

Status Quo：The Ministry of Finance published the Notice on Issues Concerning Domestic Product Standards and Implementation Policies in the Field of Government Procurement (Draft for Comments). The Notice offers definitions for a “domestic product”. Products need to be “produced in China” (e.g. not just assembled), the production cost of components produced in China must reach a specified proportion, and/or the key components and key production processes for specific products should be completed within the Chinese territory.

Pulse Check：The “Buy China” trend and unequal access to public procurement are major concerns of German companies in China. Our most recent Business Confidence Survey shows that policies such as 'Made in China 2025' or 'Buy China' are now the top regulatory challenge of German companies.

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Archive

Continuation of Existing Macroeconomic Policies

Status Quo：The focus on industrial upgrading, high-quality development and innovation to drive economic growth has been re-emphasized at the Third Plenum in July while increasing consumer demand was rather approached by indirect measures yet again. However, during various recent government meeting formats and press conferences more efforts to boost domestic demand have been on the agenda, such as consumer goods trade-in (see below for more information).

Pulse Check：German companies have set up operations in China to serve the local market. The prolonged period of low consumer demand negatively impacts their China business. To address this challenge, foreign businesses have hoped for more effective initiatives as a result from the Third Plenum.

Latest Developments on Market Access

Enhancing Consumer Demand Through Trade-in Programs

Status Quo：More provincial and local governments have released their implementation plans on consumer goods trade-in, including concrete subsidies. These measures aim to boost economic growth and have been initiated in March this year. Most subsidies for these programs are sourced from CNY 150 billion of ultra-long-term special treasury bonds (STBs). Products supported are for example vehicles, electric scooters, mobile phones and household appliances.

Pulse Check：The recent low retail sales data for August with 2.1% year-on-year increase, the second lowest level of this year, suggests that these policies have not yet achieved the intended effect, particularly with regards to big ticket items. Hence, German companies that offer products in this area haven’t yet seen the business opportunities they were hoping for.

Green Development as Driver for Economic Growth

Status Quo：The Third Plenum in July highlighted green development as a priority again, for example carbon reduction, pollution reduction, improvement of environmental governance systems and low-carbon development. Since then, the State Council released major documents such as shifting from controlling energy consumption to controlling carbon emission and accelerating the comprehensive green transformation of economic and social development.

Pulse Check：The long-standing commitment to sustainable practices has become a competitive advantage for many German companies. To maintain this asset, it might be necessary for companies to apply new standards, for example related to ESG factors, adapt to green manufacturing or to digitalize processes. Meanwhile, companies might face challenges in their green ambitions, such as obtaining access to green energy.

Equipment Replacements and Consumer Goods Trade-ins

Status Quo:To boost the economy, the Chinese government has placed emphasis on implementing equipment renewal and consumer trade-in policies. Over the past few weeks, several authorities have released action and implementation plans which have an estimated value of around 5 trillion yuan. While also serving the promotion of China’s green development, the policies include updates of 294 key national standards

Pulse Check: German companies should watch out for potential subsidies and probably need to adjust their practices to meet updated national standards. The emphasis on green development presents an opportunity for growth for companies by leveraging technical expertise and renowned products. Policies aimed at consumers could boost domestic demand, which foreign businesses are eagerly waiting for.

German-Chinese Relations

Status Quo: In Q2 2024, there were several important visits between the German and Chinese governments. Chancellor Olaf Scholz came to China for a three-day long trip together with a business and political delegation, while Federal Minister for Economic Affairs and Climate Action Robert Habeck visited in June with a group of mostly SME business representatives.

Pulse Check: Chinese and German companies are increasingly becoming close competitors - both in China itself and in global markets. At the same time, a significant share of German companies say they are affected by unfair competition. That’s why companies whish that equal treatment of foreign and domestic companies has been addressed by the German government during the high-level visits.

EU-China Relations

Status Quo: The European Commission proposed provisional additional duties between 17.4% and 38.1% on imports of new battery electric vehicles manufactured in China on June 12. Final measures are to be imposed within four months after imposition of these provisional duties. The Ministry of Commerce initiated an anti-dumping investigation against European pork and its by-products on June 17, 2024.

Pulse Check: The impact of the proposed provisional duties on NEV originating from China on German companies is yet to be seen, while the consequences of the Chinese anti-dumping investigation on pork is expected to be low. However, German companies already face mounting pressure in a business landscape marked by geopolitical tensions. The risk of more potential countermeasures only adds to this challenge.

Green Policies

Status Quo: China's renewed prioritizing of green transformation in 2024 was evident through discussions during the Two Session and especially with recent initiatives during Q2 2024. These include promoting green financing, energy efficiency, carbon management, and social responsibility among companies, all aimed at achieving China's first decarbonization goal by 2030.

Pulse Check: Companies are more and more seen as important actors in the decarbonization journey. German companies, with their extensive expertise in environmental technologies and green solutions, are well-equipped to support China's green transformation. They have a proven record of accomplishment of contributing to China's economic development and innovation through their rich expertise in advanced technologies and high-quality solutions.

Cross-border Data Transfer

Status Quo: Cross-border data transfer has been one of the top concerns of companies in recent months. End of March, the Cyberspace Administration of China (CAC) finally published the “Provisions on Promoting and Regulating Cross-Border Data Flows” as well as the first-ever national standard for data classification.

Pulse Check: With the compliance process for foreign companies becoming increasingly costly, the Provisions ease up some of the regulations around personal data transfer and for the first time it has been explicitly stated that not all data may be classified as important, but only what has been officially published by relevant authorities.

Two Sessions

Status Quo: During the Two Sessions, the Chinese government strongly emphasized the direction towards high quality development, which should be achieved by upgrading industries with the help of productivity (the “new quality productive forces”), innovation, and high-tech development.

Pulse Check: For companies, it is now important to get signals where the Chinese government is heading to. In the wake of the Two Session, many indicators have highlighted the importance of pursuing high-quality development. High-level Chinese government visits to high-tech companies and discussions with foreign CEOs during the China Development Forum serve as examples for this.

24 Points Action Plan

Status Quo: On March 19, the State Council released the “Action Plan to Solidly Promote High-Level Opening Up and Make Greater Efforts to Attract and Utilize Foreign Investment” (Action Plan). It underscores the crucial role of foreign direct investment for China's economic development.

Pulse Check: Foreign Direct Investment in China is on a record low, January to February 2024 saw a 19.9% YoY decline in terms of RMB. Interestingly, the tone of the Action Plan is more urgent than in the 24 measures from August 2023, signaling to speed up processes. The emphasize on market access support for the high-tech sector clearly underlines China’s approach towards high-quality development.

Green Policies

Status Quo: In the first quarter of 2024 we have seen many policies related to green development, such as the “Opinions on Accelerating the Green Development of the Manufacturing Industry” and the “Guidance Catalogue for Green and Low Carbon Transformation Industries (2024 Edition)”, aiming to achieve China’s decarbonization goals.

Pulse Check: Green development is crucial for German companies in China as it is one outstanding differentiator for competition. They are keen to bring their knowledge and expertise to the Chinese market. Generating and building up new drivers of growth for green development and upgrading the manufacturing industry will offer business opportunities for German companies in green tech.

German-Chinese Relations

Status Quo: This year we see more high-level visits from Germany in China. Mid of April, German Chancellor Olaf Scholz will travel to China, accompanied by a business delegation.

Pulse Check: German companies strongly welcome increased political exchange. This gives valuable signals to their business partners in China and is another channel to solve issues.

EU Supply Chain Law

Status Quo: The EU Supply Chain Act succeeded on its third attempt, receiving a qualified majority in the Committee of Deputy EU Ambassadors mid-March after two previous failures. Next, the legislation needs to be approved by the EU Parliament at the end of April. Should the legislation be passed, the German government will have a period of two years to adopt and implement the regulations into national law.

Pulse Check: The revised version of the law will impact European companies with over 1,000 employees and a global turnover exceeding 450 million euros. This increased the threshold from the previous draft, which already applied to companies with 500 employees and an annual turnover of at least 150 million euros.

Central Economic Work Conference

Status Quo: The annual central economic work conference just took place this week. This conference sets guidelines for the direction of the government’s economic work in the coming year. In 2024, as compared to 2023, technological progress will be prioritized over domestic consumption and progress over stability.

Pulse Check: Strengthening domestic consumption tops the wishlist of German companies towards the Chinese government. While consumption is still high on the agenda, the focus is even more on strengthening China’s technological edge. In an ever more competitive environment with stronger support for domestic technology companies, a level playing field becomes even more important for foreign companies operating in the Chinese market.

24-Points Policy Check-up

Status Quo: In August, the State Council released the 24-points policy for foreign investment. Since then, we have seen some action from different ministries and administrations, such as a document on unequal treatment, an extension of the IIT allowance for foreigners, exceptions on cross-border data transfer management (draft), Q&As on standardization and more.

Pulse Check: The documents released after the 24-points policy has been well received by quite some companies, especially the rather specific examples in the unequal treatment document and the cross-border data transfer management draft. However, companies remain sceptical about real outcomes.

EU-China Summit

Status Quo: The first in-person high level meeting since 2019 took place in the year of the 20th anniversary of the comprehensive strategic partnership between China and the EU. Beijing appears not to have deviated from this standpoint while the EU refers to the three-fold concept of partner, competitor, and systematic rival, and emphasizes “De-risking”.

Pulse Check: Mainly in response to geopolitical tensions, approximately 50% of companies have taken steps to mitigate their risk associated with their China business. Building up China independent supply chains serving different markets and additional operations in other countries are one of the main “De-risking” strategies.

Cross-Border Data Transfer

Status Quo: CAC has opened a public consultation on the regulations for standardizing and promoting cross-border data transfer which ended on October 15. The draft regulation proposes further clarifications and refinements of the existing policies on cross-border data transfer, e.g. the exemptions regarding the transfer of HR data, more information about the usage of the term “important data”.

Pulse Check: German companies still encounter uncertainties in cross-border data transfer as the final draft is not released yet. As a result, some companies have filed too many data while others are left uncertain on how to proceed.

Supply Chain Law

Status Quo: On January 1^st, 2024, the German Act on Corporate Due Diligence Obligations in Supply Chains (LkSG) will come into full force. From then on, also companies with more than 1,000 employees in Germany need to fulfil due diligence obligations. On EU-level, the ‘trialogue negotiations’ between the EU Parliament, the Member States and the Commission are continuing. Originally it was planned to finish the negotiations in 2023. After it comes into force, member states have two years to implement the directive into national law.

Pulse Check: More than one third of German companies still face challenges when implementing the law. Often there are unclarities of the requirements coming from the Headquarters or challenges with on-site checkups at suppliers.

Read our quarterly Policy Barometer for insights on how German companies deal with economic policy issues and discover practical tools. This is a shortened version; members receive the full version via email.

Current Spotlight on Foreign Investment

Status Quo: Several documents promoting FDI have been released recently, including the State Council's 24-point paper Opinions on Further Optimizing Foreign Investment Environment and Reinforcing the Efforts to Attract Foreign Investment. The fact that it has been released by the State Council gives it authority and requires ministries and government agencies to act.

Pulse Check: Most of the points touched upon have been on the advocacy list for years, but are now in the spotlight at the highest level. A few details are new, particularly in the intellectual property and venture capital area. Read more in the full report.

More Guidance for German Supply Chain Law

Status Quo: In mid-August, the Federal Office for Economic Affairs and Export Control (BAFA) published a new guidance document for companies. The brochure, which spans approximately forty pages, provides a detailed explanation of how companies can understand and fulfill the requirements of the law, including obtaining substantiated evidence to identify any inconsistencies or issues in the supply chain.

Pulse Check: German companies, especially SMEs, require significant assistance to comply with this intricate legislation. Some companies have begun implementing it, while others are still unsure if they are on the right track and whether their efforts will meet BAFA's expectations. Any guidance that sheds light on the matter would be beneficial for them. Read more in the full report.

Green Energy: Expanded Renewable Energy Certificate Scheme

Status Quo: Recently, China announced its plan to expand eligible projects for domestic Green Energy Certificates (GEC) to include all types of renewable projects, including offshore solar and wind, biomass, geothermal and newly built hydropower. Previously, the scheme only covered solar and onshore wind projects.

Pulse Check: GECs are still a major element for German companies to fulfill their renewable energy targets. While they hope for more availability of these certificates following the recent expansion, there is still uncertainty as GECs are not harmonized with international certificates and their recognition in other countries is questionable. Read more in the full report.

Cross-Border Data Transfer: The Standard Contract

Status Quo: At the end of May, the Cyberspace Administration of China (CAC) published a standard contract that is intended to regulate the exchange of data between the domestic personal information handler in China and the overseas recipient. This standard contract approach is expected to be the most widely adopted approach to fulfill administrative requirements for outbound transfer of personal information. The measures have come into force as of June 1, 2023, and the application for the approval process must now be submitted to the local CAC authority by the end of November at the latest. Companies that exchange a significant amount of data and do not fall under the standard contract approach must go through a certification process.

Pulse Check: German companies report difficulties in reaching out to CAC or identifying designated contact persons when they have doubts about implementing cross-border data transfers. A lot of effort is still required to sort out data. Read more in the full report.

German Govenment published long-debated China Strategy

Status Quo: In mid-July, the German Government published its first-ever China Strategy after two years of development, which will guide its future engagement with China and provide a political framework for German businesses operating in or with China.

Pulse Check: Companies did not wait for the strategy, they have already intensified their evaluation of their engagement in and with the Chinese market. However, how the strategy will be implemented is still crucial. Some ministries, such as the BMBF (Ministry for Research and Education) have issued their own guidelines, while others are still working on it. Read more in the full report.

Sino-German Government Consultations

Status Quo: The 7th Sino-German Government Consultations on June 20 in Berlin have finally taken place after a longer Covid-related pause. The overarching theme of decarbonization provided a good framework for resuming the talks, the atmosphere was quite positive and constructive.

Pulse Check: German Companies’ wish list for the German side to bring into the Consultations: 45% of German companies in China desire a clearer regulatory framework, while 60% ask for increased collaboration in decarbonization, smart manufacturing, and mobility. […]

Counter-Espionage Law

Status Quo: On July 7, China’s revised Counter-Espionage Law will come into effect. The newly revised law is broader in scope, also including possible attacks by espionage organization or cyber-attacks against state organs. Most critically, the formerly mentioned state secrets and intelligence can now also include any documents and data related to national security and interests.

Pulse Check: German companies are concerned about the law and its possible consequences. The law, however, is not viewed as a game changer, since companies have been used to facing an increasingly complex regulatory environment for years. They currently take notice of the new law and possibly review and refine their compliance. […]

IIT Reform for Foreigners

Status Quo: Under the current Chinese tax law certain allowances for companies that hire foreign employees are exempt from the individual income tax, e.g., housing allowance, children’s education fees and language training expenses. End of 2021, the Chinese government announced the extension of the otherwise to-be-extinguished tax allowance until the end of 2023.

Pulse Check: Companies are hoping not only for a continuation of the policy but for clarity as early as possible. This policy contributes to making China a more attractive work location when hiring new expats from Germany or elsewhere. […]

Supply Chain Due Diligence

Status Quo: The German Act on Corporate Due Diligence Obligations in Supply Chains came into force on January 1, 2023. The German government continues to publish documents for facilitating the implementation process. Regarding the European Supply Chain Directive, the Parliament has recently – after several discussions – adopted its position. Now negotiations with member states on the final text of the EU Directive are starting.

Pulse Check: Meanwhile, companies continue to implement the law, there are, however, still much more questions than answers. Many companies try to have their suppliers sign additional contractual obligations, which they do not always agree to. Some are hiring auditors, and this can be a valuable tool for getting more information on suppliers. It is, however, not exempting the company from its due diligence obligations. […]

Two Sessions

Status Quo: The annual meetings of China’s national legislature (NPC) and political advisory body (CPPCC), commonly referred to as the “Two Sessions,” took place from March 4 to 13. This year’s two sessions included several major focal points: First and foremost, Xi Jinping was officially reaffirmed as President of China. The new prime minister Li Qiang as well as the four vice premiers have been officially announced. In addition, we have experienced a considerable reshuffling of state institutions, with a focus on how the government regulates finance, technology and data. Key personnel in state institutions affecting German businesses remained largely the same.

Pulse Check: Business confidence among German companies in China hit rock bottom during 2022. Now, the 14th National People’s Congress – with its new government in place – was the most crucial policy event to give indications on the future economic development […]

Green Energy

Status Quo: The promotion of green electricity is one of the key measures taken by the Chinese government in its efforts towards decarbonization. In order to reach its dual goals of reducing carbon emissions from its peak level by 2030 and achieving carbon neutrality by 2060, China has emphasized the promotion of green energy. The country is targeting half of the total energy consumption to be renewable energy by 2030, and issues policies requiring particularly multinationals and energy-intensive industry players to speed up the development of green electricity.

Pulse Check: While German companies are committed to using green energy, they still face considerable challenges in implementing their related targets […]

Germany's Supply Chain Law

Status Quo: The German Act on Corporate Due Diligence Obligations in Supply Chains came into force on January 1, 2023. According to the latest updates by the Federal Office for Economic Affairs and Export Control (BAFA), companies that are directly affected as of January 1 do not yet have to fulfill the whole set of due diligence obligations now. They now mainly need to designate a responsible person within the company and implement their complaint mechanism. The responsible person must be located in-house – outsourcing is not an option. Furthermore, BAFA has announced that it will check submission and publication of the annual report for the first reporting period only as of June 1, 2024.

Pulse Check: The law poses several new challenges: major uncertainties persist regarding the documentation duties tied to the law […]

Sino-German Relations

Status Quo: Recent months have been full of speculations surrounding the German government’s China Strategy. There have been leaks from different governmental institutions – most notably, from the Foreign Office and the Ministry of Economic Affairs and Climate Action. Also, several political parties have published their own position papers regarding the strategy. Last month, major stakeholders in charge of formulating the strategy traveled to China.

Pulse Check:

German companies are worried that the China strategy might further deteriorate political relations between China and Germany […]