WORLD OF INDUSTRIES 5/2019

Author: Sushen Doshi,
International Correspondent
for World of Industries
China: a strong partner and also a fierce
competitor for German industries
NEWS AND MARKETS
For so long, Germany and the E.U. have been handling
China with caution, as it was too important a market
for exports. But now, various industry sectors have
been complaining openly about restrictions and unfair
treatment to foreign companies. Even the Federation
of German Industries (BDI) now defines China as
a systemic competitor. China as a market is
indispensable, but there is a major shift in approach
from Germany and the E.U.
For the third consecutive year, China has managed to maintain its
position as Germany’s most important trading partner with a total
trade volume nearing € 200 billion in 2018, according to preliminary
figures published by the German Federal Statistical Office.
China accounted for the largest share of imports into Germany with
goods worth € 106 billion, followed by the Netherlands with € 98
billion and France with € 65 billion. Germany’s trade surplus was
highest with the United States, totaling € 49 billion, followed by the
UK € 45 billion and France € 40 billion. Germany’s trade deficit with
China amounted to € 13 billion in 2018. It is worth noting that Germany’s
trade with China is almost balanced, and mutually beneficial
for both the countries. For Germany’s mechanical and plant
engineering sector, China has been the most important export market
and second most important foreign investment destination. The
interest in this market is uninterrupted and a further expansion of
business activities in China is expected. A positive factor for German
engineering companies is that the Chinese demand for automation
and digitization will increase in the coming years. The modernization
efforts of China’s industry in particular offer good business
opportunities in the short term. But what about the medium and
long term?
The China’s economy started to blossom after the strategic reforms
of 1978 that led to opening of the Chinese economy. Since
then there was a belief that China would gradually move towards
being an open market and integrate into the global economy. It
looks like this convergence is no longer possible as China is in the
process of consolidating its trade and economic model. At the same
time, China’s economic and industrial strength remains one of the
key driving forces of the global economy and is shaping international
markets. From Germany’s perspective, it is also one of the
important sales and procurement market for German industry. As
such, German industry wants to engage and create more opportunities
in China, but the Chinese state controlled economic model
creates systemic unfair competition with open market economies,
which poses challenges that the EU simply cannot ignore.
Foul, but play on!
China has a hybrid economic system that has a mix of state and
market elements. Despite considerable liberalization of the economy,
the state still continues to play a strong role in the allocation of
resources. Its influence on prices of land, energy, capital, labor and
indirect or direct subsidies for companies or entire industry sector
have led to production overcapacities and global market distortions,
like in the steel sector. In future, overcapacities can be expected
in areas of robotics and electric vehicle batteries. Also, while
Chinese companies have enjoyed relatively free access to the EUs
internal market, this does not apply equally to foreign companies in
China. Even today, many industry sectors attract investment bans,
caps or obligation to set up joint ventures. Along with this, China
also has high levels of industrial tariffs and also multiple non-tariff
barriers for foreign companies.
8 WORLD OF INDUSTRIES 5/2019