Shanghai, Dusseldorf, Munich The tapes are running again in Anting. In the VW factory on the outskirts of Shanghai, sparks fly in the welding line, in assembly workers wire up control units for electric cars. The plant is still a long way from full-load operation, but production is at least on most days of the week.
On a small scale, this shows how China’s economy is recovering after the strict zero-Covid policy. Just over a year ago, the plant was “on the back burner,” says Oliver Wollinsky, head of electric car production in Anting, the Handelsblatt.
During the tough lockdown in Shanghai, 500 employees kept production running on a rudimentary basis. Everything is voluntary and in compliance with government regulations, as VW emphasizes. After shifts, workers often got together to play games or cut each other’s hair as life and work took place within the factory fence for weeks.
Hardly any other German company has felt the effects of Beijing’s tough corona policy more severely than Volkswagen. The carmaker closed 2022 with a nine-year low in the market. As recently as December, 70 percent of VW plants in China were closed. In January and February, too, sales were so poor that the Chinese competitor BYD was able to replace Wolfsburg as the market leader in the country for the first time in decades.
“The market is now picking up again noticeably,” says China boss Ralf Brandstätter. Beijing’s opening policy has “triggered enormous momentum” in recent weeks. In 2023, VW expects market growth of four to five percent. “In the big cities, consumerism is back,” emphasizes Brandstätter. The auto industry would also benefit from the catch-up effects.
From a German perspective, the auto industry is certainly the most important, but by far not the only sector that has recently experienced a recovery in China. With economic growth of 4.5 percent in the first quarter, the country surprised the markets with its dynamism. Since then, hope has been growing in the corporate headquarters of Western companies that China will once again drive demand in the current year.
>> Read also: like that Mercedes, VW and Co. turn their lame e-car business in China
But the economic situation remains shaky. The current Purchasing Managers’ Index just published shows an unexpected decline in production. The weakening export of the manufacturing industry in China was given as the reason. It turns out that the upswing has so far been driven more by consumption, especially in the luxury sector.
The Chinese business gave the French luxury goods group LVMH, with its watches, bags and perfumes, a strong first quarter and meanwhile caused the market valuation to rise to more than 500 billion dollars.
Luxury goods are in demand again.
(Photo: Bloomberg)
At the end of last week, Mercedes-Benz also reported a strong start to the year. The Dax group refers to the “high sales of vehicles of the G-Class, Mercedes-AMG and Mercedes-Maybach”. Maybach sedans are built almost exclusively for the Chinese market. Something similar can be expected from the sports car manufacturer Porsche. There, sales in China have recently increased by more than a fifth.
Puma and Adidas have domestic competition
Sporting goods manufacturers are also hoping for catch-up effects, but the situation is different than it was a few years ago. Not only the lockdown in China has repeatedly ruined the plans for Adidas and Puma. Western fashion companies have been the target of a boycott campaign by Chinese consumers for stopping using Uyghur cotton due to human rights violations.
As a result, local competitors gained market share. This is also due to the fact that the Germans in China rely on global collections and do not adapt enough clothing specifically to the wishes of local customers. Adidas alone lost more than a third of its China sales in 2022.
But things are getting livelier again in the shops after the end of the corona restrictions, says Puma boss Arne Freundt. After two years of declining sales, the company was able to increase its China sales for the first time by almost ten percent in the first quarter of 2023.
Although Freundt does not yet want to announce a major turnaround, he says: “We are cautiously optimistic that this positive trend will continue.” According to his impression, the calls for a boycott of Western brands due to criticism of China’s handling of the Uyghur minority have subsided.
BASF and Covestro: Hoping for the second half of the year
The most recent upswing in China has not really caught on in the German chemical industry. Corporations such as Covestro and BASF are currently only seeing slight signs of improvement. “We are not yet feeling any major growth impetus from China,” says Markus Steilemann, head of the plastics manufacturer Covestro. He expects a slow recovery. As a major export nation, the country is also affected by the weakening global economy.
The industry therefore remains cautious: “A clear signal for a significantly stronger second quarter can not yet be read in the market, not even from China,” explains Christian Hartel, head of Munich-based Wacker Chemie.
At least the situation there is better for the German chemical industry than at home and in other regions. In Europe, demand remains at a low level, while the prospects in the USA are uncertain. How the big chemical companies will develop this year depends to a large extent on Asia.
Industry leader BASF expects Beijing to use supportive measures to boost the economy in the coming months. Observers assume the same. “The mixed signals are likely to keep pressure on the government to continue its supportive fiscal and monetary policies in the second quarter,” Zhang Zhiwei, chief economist at asset manager Pinpoint, told Bloomberg.
Auto supplier Webasto is reducing its dependency
Even in the automotive industry, not everyone is feeling the new boom in China, as the supplier Webasto confirms. The world market leader for panoramic glass roofs remains cautious. Last year, the share of sales from China business fell from 32 to 27 percent. “There has been a certain shift, which we see as an advantage,” says CEO Holger Engelmann.
For Webasto, as for the rest of the German auto industry, being heavily dependent on one country in recent years has been a concentration of risk. This will take care of itself to a certain extent. Purely Chinese suppliers are currently gaining market share, especially with electric cars, while the joint ventures between German manufacturers and their German suppliers are under pressure.
>> Read about this: Chinese e-cars are largely “made in Germany”
This is an opportunity for Webasto. In order to balance the business even further, CEO Engelmann is also ramping up activities in other Asian countries, such as Japan and South Korea.
More: This is how self-confident the premium manufacturers present themselves in China