Beijing On the international stage, China’s head of state and party leader Xi Jinping keeps promising open markets and more cooperation – most recently prominently on Monday in a video message at the World Economic Forum. But the reality in the People’s Republic often looks different. German companies in China are suffering from the country’s increasing isolation, according to a survey published on Tuesday by the German Chamber of Commerce Abroad (AHK) in China. More than a third of German companies doing business in China stated that it was disadvantaged compared to domestic companies – this is a dramatic deterioration in just one year. In the same survey in 2020, only 20 percent of companies had made this statement.
“The lack of equal treatment has become the biggest regulatory challenge for the German economy in China,” says Clas Neumann, President of the German Chamber of Commerce in Shanghai. In the ranking, the topic of discrimination and protectionism now occupies first place in the regulatory challenges for German companies – in the previous year it was only sixth place. The Chamber of Commerce attributes the preferential treatment given to Chinese companies to the country’s political focus on the domestic economy.
A total of 596 German companies with business in China took part in the annual survey from October to November.
China’s government wants the People’s Republic to become more independent from other countries. Beijing made a number of moves in this direction last year. For example, China relies on the concept of “dual circulation”, which also runs through the five-year plan, which applies until 2025. Local companies should be strengthened. Foreign companies should only do business in areas where Chinese competitors are not yet technologically advanced.
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German companies fear fewer business opportunities in all areas
As a delegate from German business in China reports, government agencies in the People’s Republic of China now sometimes need a special permit if they want to place an order with foreign companies instead of domestic ones.
The European Chamber of Commerce in Beijing had already warned in September of China’s increasing isolation. “China’s plan to increase its self-sufficiency will continue to cause friction with other major economies,” the chamber said in a position paper. By diminishing the role played by European companies in the Chinese economy, China’s innovation efforts would slow down.
In a conversation with Chancellor Olaf Scholz (SPD) on Monday, China’s Prime Minister Li Keqiang expressed the hope that “the German side would be more open to Chinese companies”. But what the Chinese government demands for domestic companies is less and less the case for German companies in China. “For a future-proof commitment in the Chinese market, the German economy in China needs a sign that equality is part of the economic system,” demanded Chamber of Commerce representative Neumann.
Despite the challenges, according to the AHK survey, only a very small proportion of the companies active in China are considering ending their business in the People’s Republic. 96 percent want to continue to be represented in the second largest economy in the world in the next two years. But the prospects for this year have clouded over significantly. Only around 51 percent of the companies stated that they expected improvements in their sector, 18 percent believe that the climate will worsen.
Companies fear fewer business opportunities in all areas. Only a little more than half of the companies see the increasing domestic consumption in the People’s Republic as attractive. In 2020 it was still more than 70 percent. And while in 2019 almost two-thirds still expected an increase in demand for foreign products, in the current survey it was only 39 percent.
Fear of further restrictions due to the spread of the omicron variant
Among other things, the ongoing restrictions to contain the corona pandemic in China led to the clouded opportunities for consumption. China is pursuing a zero-Covid strategy to fight the virus, which is being enforced with draconian measures.
Recently, locally transmitted cases of the highly contagious omicron variant were reported for the first time in China. Since then, there has been growing fear of further restrictions that local authorities are trying to bring the pandemic under control. “Omicron could cause massive blocking in the future,” warns Andreas Glunz, Head of International Business at the auditing firm KPMG in Germany. The company was involved in creating the AHK survey. Further corona cases were reported in the Chinese capital Beijing on Tuesday.
However, medium to long-term effects add to the disillusionment with domestic consumption. The growth in the purchasing power of middle-income earners has not increased as much as expected. In addition, China is threatened with an aging society, which will also put pressure on consumption.
The increased competition from domestic suppliers also means that the business prospects for German companies have clouded over. “German companies are reviewing their strategies in China and adjusting them,” says KPMG expert Glunz.
More: “Serious problem for global supply chains” – China’s rigid corona policy endangers world trade