German firms ‘will invest more in China’ despite trade war, slow reform
December 4, 2018 Category Foreign investment, Weekly
For German firms, the trade war and slow reform are not sufficient reasons to slow investment in China’s large consumer market. Most German companies will ratchet up their investment in China, despite the ongoing economic uncertainty created by the U.S.-China trade war, according to a new survey. Two-thirds of German firms currently doing business in China said they plan to increase spending within the next two years, even though many are worried about China’s economic outlook and dissatisfied with the pace of reform. Over half said they consider China’s market opening insufficient and criticized the absence of a level playing field for foreign companies, while almost a third expected China’s economy to worsen in the coming year.
The results of the survey, conducted by the German Chamber of Commerce in China, were released as Beijing expressed a willingness to increase the pace of reform during a charm offensive in European capital cities. The German Chamber survey was conducted before Chinese President Xi Jinping and U.S. President Donald Trump agreed to a ceasefire in the trade war. The survey shows that 86% of German companies did not change their investment plans in China over the past year. Another 10.6% decided to increase investment, while only 3.4% decreased or stopped investment due to regulatory and market barriers. Some 89.3% of German companies surveyed said they did not have any plans to leave the “world’s factory” within the next two years.
In July, BASF, the world’s largest chemical firm, signed a preliminary deal to build a USD10 billion complex in Zhanjiang in Guangdong province. Signed during a state visit by German Chancellor Angela Merkel, the plant could become its third-biggest global production base upon completion in 2030. In October, Munich-based luxury car maker BMW announced a €3.6 billion deal to raise its stake in its Chinese joint venture to 75%, up from 50%. This was the first such move from a global automotive company and came after Beijing announced a relaxation of ownership rules in China’s car market. The deal will be completed in 2022, when the new rules come into force.
Speaking at the Hamburg Summit: China Meets Europe, Chinese Vice Premier Liu He cited the BMW deal as an example of China opening up its economy to foreign investors. He said that BMW would be able to take a 100% ownership stake in the joint venture, but that it wished to maintain its local partner. The Chinese political leadership has used the European roadshow as a chance to present its free trade credentials, with Liu suggesting that China was willing to deepen cooperation on finance, trade and investments with Germany.
But despite their willingness to invest, the survey showed that 55% of German companies thought China’s economic reform and market opening had been insufficient, while 53.6% were dissatisfied with the lack of a level playing field for foreign companies. German companies have also become less optimistic about Chinese economic prospects. Nearly 30% said they thought the economy would worsen in the next year, compared with 18.5% in last year’s survey, the South China Morning Post reports.
German President Frank-Walter Steinmeier is making a six-day state visit to China this week. As Foreign Minister from 2005-09 and 2013-17 he advocated greater engagement with China. Steinmeier’s trip comes as trade between the countries is on track to reach an all-time high. China has overtaken the U.S. in the past two years as Germany’s largest trading partner. Germany has long been China’s biggest trading partner in the EU. China’s trade volume with Germany alone is equivalent to its total combined trade volume with Britain, France and Italy.
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