Business Confidence Survey
First launched in 2007, the Business Confidence Survey has been a key instrument for measuring the business sentiment of German companies operating in China. The survey is also the main tool and source of our advocacy work.
Localization 3.0
Published on December 4, 2024
The Business Confidence Survey 2024/25 highlights economic headwinds, fierce competition, and local protectionist measures as key concerns. “This year has been difficult for the majority of German companies, prompting a downward adjustment of their business outlook,” said Clas Neumann, Chairperson of the Board of the German Chamber of Commerce in East China.
The survey indicates that 60% of German companies perceive a deterioration in China’s economy compared to the previous year, with only a quarter anticipating improvement in their industry in the coming year. However, 92% of German companies plan to maintain their operations in China. Clas Neumann adds: “By deepening localization strategies, German companies are addressing current market challenges and mitigating risks while positioning themselves to take advantage of the opportunities at hand.”
Key Findings:
- Industry Outlook at Historic Low: For the current year, only 15% of surveyed companies anticipate improvements in their industry, while 55% expect a decline. Looking ahead to 2025, 29% predict deterioration, and just 32% foresee positive developments — marking a historic low. However, 92% of German companies plan to continue their operations in China, a figure that aligns with the results from previous years. Only 0.4% of companies have concrete plans to leave China.
- Companies Brace for Challenging Market Conditions: 56% of respondents identify weak demand in China as one of their top three leading business challenges, followed by price pressure at 52%. Further, 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.
- Market Dynamics Trigger Localization 3.0: In response to competitive and price pressures, German companies operate more ‘in China for China’ and adopt the mindset of operating like a Chinese company. 40% of respondents are now operating more independently from their headquarters, reflecting a significant 12 percentage point increase from last year.
- Competition Keeps Driving Investment: 51% of German companies plan to increase investment within the next two years. Of these, 87% cite the need to remain competitive as their primary motivation – an 8 percentage point increase from last year.
- Innovative Edge of German Companies Is Fading: 55% of German firms expect Chinese competitors to become innovation leaders in their industry within five years, while 8% report this is already the case. Last year, only 5% of respondents viewed Chinese firms as innovation leaders in their industry, with 46% anticipating this leadership within five years
- Local Protectionism Tops Regulatory Challenges: For the first time, the "Buy China" trend has emerged as the primary regulatory challenge for German companies operating in China, with 29% of participants identifying it as a key concern — an increase of 8 percentage points from the previous year. Additionally, 26% of German companies indicated that the preferential treatment of local firms is another significant challenge they face.
- Global Expansion of Chinese Companies Leading Business Opportunity: When ranking business opportunities in China, the internationalization of Chinese companies stood out as the sole category experiencing growth compared to last year and the leading business opportunity.
Following the key findings of our Business Confidence Survey, we would like to provide additional context on our concept of Localization 3.0 and its significance for German companies operating in China.
Localization 3.0 is a term used by the German Chamber of Commerce in China to describe a significant strategic shift where localization is now driven by local market dynamics alongside regulatory requirements. This shift is primarily triggered by rising competition and price pressures, leading German companies to deepen their localization strategies. For example, companies are increasingly adopting a local mindset in terms of doing business, with greater independence from their headquarters. Additionally, firms tend to localize to target global markets, essentially adopting a "being in China for China, plus being in China for the world" approach. At the same time, German companies continue to implement localization strategies to mitigate geopolitical risks.
Localization 1.0 focused on overcoming market access constraints, such as requirement to establish joint ventures with Chinese partners. In 2021, we coined the term Localization 2.0 to describe the development that emerged from China’s push for self-sufficiency and homegrown innovation, supported by specific regulations and incentives.
About the Business Confidence Survey 2024/25
Between September 3 and October 8, 2024, a total of 546 member companies of the German Chamber of Commerce in China participated in the survey, making this one of the most representative samples of German business sentiment in the country. The Business Confidence Survey, first launched in 2007, has become a key instrument for assessing the sentiment of German companies operating in China and serves as the primary tool for our advocacy efforts.
Download the Business Confidence Survey Report 2024/2025
Download the Press Release (English)