German Companies to Increase Investments in China

German companies in China are plan- ning to increase their investments in the upcoming year， especially those big companies， despite challenging conditions， according to a recent survey by the German Chamber of Commerce in China(GCC).

The survey， based on more than 300 German member companies in China， said the majority of the companies expect their business volume to continue to rise and their profitability to improve beyond 2012.

China remains the most important market worldwide for German companies. German firms expect higher sales and increased profits and want to make further investments in China –despite indications that Chinese competition is significantly increasing.

Around half of the German companies foresee the economic environment in China remaining unchanged in the near future. All in all， the positive expectations in regards to the business development in 2012 predominate. Over 70 percent anticipate that they will mainly meet their targets in the Chinese market this year. The automotive industry， however， claims to be confronted with many more challenges.

An earlier survey by the European Union Chamber of Commerce in China showed that over 20 percent of the interviewed EU companies in China are considering transferring their investment to outside China.

“We do not have this consideration. On the contrary， we are planning to enhance our business in China which is such a huge market，” Dr. Gou Jianhui， Schaeffler Greater China Managing Director and President Industrial， told China’s Foreign Trade.

This year marks the 40th anniversary of Sino-German diplomatic ties. The past decades have seen more and more German companies tapping into China’s market.

The Sino-German trade expanded to $169 billion in 2011 from only $275 million in 1972. As of the end of 2011， Germany had established more than 7，000 companies in China， and invested in over 7，500 projects， with the accumulative investment exceeding $19.3 billion. Germany also exported nearly 16，000 forms of technology to China， said Wang Zhile， director of Beijing New Century Academy on Transnational Corporations， at a forum held in Beijing celebrating the SinoGerman 40 years’ relations with officials， experts and entrepreneurs present from the two sides.

According to the survey， for almost every German company， China is one of the three major markets around the world — in the automotive and mechanical engineering industries， the ratio is two thirds. The sales potential in China and the proximity to residential customers remain the main reasons for a market presence. In addition， the Middle Kingdom is gaining importance as a cornerstone for business strategies in Asia. Similarly， the Chinese competition continues to increase and now three out of four companies face Chinese competition.

Though regarding China as a cornerstone in the Asian market， German companies still face ongoing staffing problems and more protectionism.

The survey showed that finding qualified staff and increasing salary costs are still the biggest challenges for active German companies in China. About 5 percent more companies than last year see bureaucracy as a challenge in China. On the other hand， currency risks have been minimized due to the strong focus on China as a market as well as increasing domestic added value. After a difficult year in 2011 the companies are now slightly more optimistic towards the development of energy and raw material prices. The protection of IPR ranks at place 13 in the list of challenges but at the same time companies sense increasing protectionism in the Chinese market.

Another survey by the GCC and Euro Asia Consulting showed that although the most important key markets for German companies in China are the Yangtze and the Pearl River Deltas， these firms predict that their future selling market will be in Central and Western China.

The survey indicated that most German companies distribute their products directly in China. In order to be close to the customer and to protect their own know-how and expertise， big companies especially are focusing on direct distribution. For long-term success， companies view improving their distribution efficiency as essential. Only 5 percent are satisfied with the current situation.

“In the future， indirect distribution channels in particular will gain more importance. This is mainly to face both internal HR problems and increasing pressure from competition in distribution，” the survey said.

“German companies should adjust their strategies in China and play an active role in China’s economic restructuring， in order to grasp the development opportunities here，” said Wang.

“The companies of both sides should focus on the long-term strategic partnership，” said Michael Schaefer， German ambassador to China.