Sentiment among German companies in China at an all-time low

Berlin Never in recent years has the mood among German companies in China been as bad as it is at the moment. This is shown by the annual business climate index of the German Chamber of Commerce Abroad (AHK) in China, which was published on Thursday.

The market has become less attractive for almost half of all German companies (49 percent) in China. According to the report, business confidence in German companies in China is at an “historic low”.

The investment confidence of German companies doing business in the People’s Republic has declined “significantly”. 58 percent of those surveyed consider China to be less attractive as an investment location compared to other markets. As a result, just half of the companies intend to increase their investments locally in the next two years – in 2021 it was still 71 percent.

For the survey, 593 member companies of the AHK China were surveyed in the period from August to September. “Covid-19 and geopolitical tensions, as well as Russia’s war of aggression against Ukraine, have had a negative impact on supply chains, logistics, consumption and production,” the report said. These factors would have put “immense pressure” on German companies in China. 41 percent expect a drop in profits this year.

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In some sectors, the mood is particularly bad. More than two-thirds of companies in the automotive industry and 44 percent of mechanical engineers said that development in their area would have deteriorated in 2022 compared to the previous year. Around 70 percent even said so in chemicals and consumer products and services.

Demand from abroad cautious

The second largest economy in the world as a whole has been shaken by almost three years of corona restrictions, which have repeatedly led to production losses and interruptions in supply chains, but above all to a slump in consumption.

Container port in China

For around two months, the weakness in consumption has been accompanied by more restrained demand from abroad.

(Photo: dpa)

A surprisingly weak development was shown in the sales data in the Chinese retail sector. Here, the national statistics agency reported a 5.9 percent year-on-year drop in sales for November.

Analysts had expected retail sales to fall 2.9 percent. Retail sales are used as an indicator of consumer demand. In October they had already fallen by 0.5 percent compared to the same month last year.

Industrial production growth also continued to weaken, reaching its lowest level in six months, according to the statistics agency. In November, production in the country’s industrial companies grew by 2.2 percent year-on-year.

Growth in Chinese industrial production was even weaker last May. In October, industrial production increased more than twice as much year-on-year at 5.0 percent.

For around two months, the weakness in consumption has been accompanied by more restrained demand from abroad. In November, Chinese exports in US dollars fell by 8.7 percent compared to the same month last year, as the customs authority recently announced. In October, exports had already fallen by 0.3 percent.

>>Read here: Weak global demand causes China’s exports to collapse

According to the AHK report, German companies are reacting to the subdued business in China with a two-pronged adaptation strategy. On the one hand, corporate headquarters pushed ahead with supply chain diversification and investments in Asia. On the other hand, German companies continued to localize research and development, procurement, production, marketing and sales as well as personnel in China.

“The sudden end of China’s zero-Covid-19 policy is a game changer”

The Chinese government is holding its annual central economic conference behind closed doors until Friday. As the Reuters news agency reports with reference to Chinese state media, China wants to boost its economy by strengthening domestic demand and investments.

Corona pandemic in China

However, the extensive lifting of the restrictions apparently resulted in a massive increase in infections.

(Photo: dpa)

The surprising and extensive easing of the corona restrictions in the country is currently causing great uncertainty, but also relief. Clas Neumann, chairman of the AHK in Shanghai, said: “The sudden end of China’s zero-Covid-19 policy is a turning point.”

The Chinese government had extensively relaxed the corona restrictions last week after the great weakness of the economy and the first protests against the strict measures. However, the extensive lifting of the restrictions apparently resulted in a massive increase in the number of infections.

Eyewitnesses report numerous infected people in their area, but they do not appear in any official statistics. Long queues formed in front of hospitals, some medicines were sold out. According to eyewitness reports, the streets of large cities such as Shanghai and Beijing were deserted in many places, and nobody dared to go into the shops either.

>>Read here: There is a lack of medicine, hospital beds and staff: China is facing the Covid chaos

The German Chamber of Commerce in China welcomes the Chinese government’s departure from the zero-Covid policy, it said in a statement. The chamber warned that the new regulations would have to be well planned and implemented in a structured manner at all levels in the country.

According to AHK representative Neumann, there are also a large number of sick employees at German companies. So far, however, the chamber has not observed any “dramatic cuts or closures” of production facilities. However, about 30 percent of the companies considered this due to the high level of sick leave.

How German companies deal with the number of infections

German companies are trying to adapt to higher numbers of infections and to avoid contagion. According to the company, employees at the chemical company BASF must continue to wear a mask on the company premises, especially in shuttle buses, in elevators and in canteens.

Empty streets in China

According to eyewitness reports, the streets of large cities such as Shanghai and Beijing were deserted in many places, and nobody dared to go into the shops either.

(Photo: dpa)

Most BASF locations continued normal operations, the group said at the request of the Handelsblatt. The number of cases at the family company Heraeus has not yet increased either, the company reports on request.

The production network of Volkswagen and its joint venture in China is currently stable, according to VW. So-called “closed-loop programs”, in which employees are only allowed to move around the factories in restricted areas, are currently not planned.

Production at the chemical company Covestro is also stable, it said when asked. However, contingency plans have been drawn up. For example, one can arrange overtime or adjust the operating mode and production utilization if necessary, depending on how high the attendance rate is in the event of an increase in cases.

More: Support for Taipei: Stark-Watzinger could travel to Taiwan in 2023.

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