China: Adjusting to new economic realities

Beijing/Shanghai – As China’s economy continues its transition to a more moderate phase of growth, the business environment is also undergoing changes, and German companies are adjusting their expectations. Companies anticipate slower expansion of business, but expect better growth for their own industries than for the economy in general. This year’s Business Confidence Survey 2015, which was conducted by the German Chamber of Commerce in China between May 11th and June 12th 2015, collected the opinions of 439 responding companies on issues related to business outlook, investment climate and market conditions.

German businesses in China easing into lower levels of growth after showing resilience to economic slowdown in 2014
After a strong performance in 2014 – despite the fact that growth rates had already been adjusted to lower levels – the continuous economic slowdown in the first half of 2015 has led German companies to adjust their business outlook for 2015 downward. However, the share of companies expecting to achieve their business targets remains above 50%. The majority of businesses continues to achieve healthy growth in turnover and profits indicating that rather than experiencing a sharp decline, they are easing into lower growth levels. The immediate impact of the slowdown is felt differently across industrial sectors, but in general companies evaluate the prospects of growth in their own industry better than they do overall economic growth.
Prospects for growth in industrial sectors positively impact investment climate, but enthusiasm for reforms is weakening
While the investment activity by German companies at their current locations has fallen slightly, the share of companies planning to invest in new locations in China has remained stable compared to that of the previous year, and there is no indication that investment is being relocated to other countries. As the world’s second largest economy shifts to more moderate growth, both industry and economic growth are still largely perceived as contributing to a positive investment climate. The announced economic reforms are generally seen as making a positive impact, but the initial enthusiasm has fallen in response to lack of progress. Internet restrictions and slow internet speed are perceived as having a negative impact on investment climate.
Modern manufacturing and R&D already a key element for German investment
65% of companies considering new investments in manufacturing activities are from the automotive, machinery and chemical sectors. This indicates that German companies are committed to strengthening their position in the area of modern technology driven manufacturing. Similarly, more than half of companies which engage in global research and development engage in such at their Chinese locations. German companies are more reliant on skill-based sectors rather than low-wage and low-skill industries and hence are well positioned as China continues to modernize its economic structure.