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. 1/2024

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.

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Archive

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 […]

Economic Data & Surveys

Competence Centre for the Food and Agriculture Industry

AHK Policy Barometer

Vol. 1/2024

Cross-border Data Transfer

Two Sessions

24 Points Action Plan

Green Policies

German-Chinese Relations

EU Supply Chain Law

AHK Greater China Policy Barometer vol. 4/2023

Central Economic Work Conference

24-Points Policy Check-up

EU-China Summit

Cross-Border Data Transfer

Supply Chain Law

AHK Greater China Policy Barometer vol. 3/2023

Current Spotlight on Foreign Investment

More Guidance for German Supply Chain Law

Green Energy: Expanded Renewable Energy Certificate Scheme

Cross-Border Data Transfer: The Standard Contract

German Govenment published long-debated China Strategy

AHK Greater China Policy Barometer vol. 2/2023

Sino-German Government Consultations

Counter-Espionage Law

IIT Reform for Foreigners

Supply Chain Due Diligence

AHK Greater China Policy Barometer vol. 1/2023

Two Sessions

Green Energy

Germany's Supply Chain Law

Sino-German Relations