From 14 to 16 April 2024, Federal Chancellor of Germany Olaf Scholz paid a visit to China with a sizeable delegation comprising heads of a dozen industrial giants. The visit coincided with the 52nd year of diplomatic relations between Germany and China and the 10th year of the all-round strategic partnership between Germany and China. In 2023, bilateral trade between Germany and China amounted to € 253.1 billion, and for eight consecutive years China has been Germany’s biggest trading partner.
China’s market serves as a blue ocean for German enterprises to expand their business as well as a fertile ground for technological innovation and industrial upgrading. In this article we will explore German investment trends, opportunities, and challenges in China, showcasing the ever-deepening economic and trade cooperation between China and Germany.
German Investment in China Sustains Growth, Scaling Record Heights
Germany has been China’s largest trading partner in Europe for 49 consecutive years. A recent study conducted by the German Institute for Economic Research (DIW) has revealed that Germany’s direct investment in China soared to a fresh peak of €11.9 billion in 2023, registering a year-on-year growth of 4.3%. This significant surge underscores the undeniable allure of the Chinese market to German enterprises. Furthermore, the “Business Confidence Survey 2023/2024” published by the German Chamber of Commerce in China indicates that over half of the surveyed German companies intend to increase their investments in China over the next two years. This foreshadows an even closer economic and trade partnership between China and Germany.
German Investment Share in China Reaches New Heights, with Emerging Sectors Becoming New Hotspots
Not only has the total volume of German investment in China scaled up, but also its proportion of Germany’s overall overseas investment portfolio has also been escalating annually. An analysis of data from the German Central Bank by DIW shows that in 2023, German investment in China accounted for 10.3% of its total overseas investment, marking the highest level since 2014. While traditional industries, including automobiles, chemicals, and power generation equipment, remain fundamental pillars of German investment in China, with the economic transformation and upgrading, innovative R&D, climate protection, renewable energy development and other emerging sectors are gradually becoming new hot spots for German enterprises to invest in China. German healthcare equipment supplier Siemens Healthineers invested an additional RMB 1 billion to set up an R&D and Production Base in Shenzhen, and Volkswagen (VW) invested EUR 2.5 billion to expand its Manufacturing and Innovation Centre in Hefei city, which not only reflects the importance that German enterprises attach to the Chinese market but also bring more possibilities for the cooperation between the two sides.
Hannover Messe Reinforces Sino-German Cooperation with New Highlights
The success of Hannover Messe 2024 builds bridges of collaboration and interchange for the global industry. The Messe attracted nearly 4,000 exhibitors from around 60 countries and regions. Notably, Chinese exhibitors comprised 30% of the total, second only to the host Germany. Jiangsu Province’s Taicang city, where many German Enterprises are located, utilized this platform by hosting an investment forum, signing two significant projects with a combined investment exceeding RMB 30 million, and injecting new vitality into the Sino-German economic and trade cooperation in science and technology.
SMEs and Hidden Champions Navigate New Horizons in China
German high-tech startups, small and medium-sized enterprises (SMEs), are progressively acting as fresh focal points in the China-Germany collaboration. The successful convening of the Beijing Sino-German Industrial Cooperation and Development Forum – Sino-German (Europe) Hidden Champions Forum has established a direct conduit for dialogue and partnership between the two sides. Over a dozen projects from diverse sectors, including new energy smart vehicles, digital economy, education, and culture, reached cooperation agreements during the forum. These included the establishment of the International College of the University of Paderborn (Beijing), the China headquarters and R&D centre of MediCAD which is a German medical software company, a trustworthy data circulation service for the Sino-German automotive sector, and the China headquarters and R&D centre of WrxFlo which is an Irish software company. These achievements showcase the boundless opportunities awaiting European SMEs in the vibrant Chinese market. Furthermore, HCP GmbH, a German SME in the pharmaceutical and healthcare sector which pioneered entering the Chinese market, intends to establish a dedicated live e-commerce base in Taicang, Jiangsu, showcasing the proactive exploration of innovative market strategies by German SMEs in China.
Fortifying Economic and Trade Ties Amidst Global Economic Volatility
The sizable Chinese market provides opportunities for German enterprises to reach business growth and revenue streams. Concurrently, China’s relentless pursuit of technological innovation and green development has ushered in novel avenues for collaboration for German businesses. By deepening China-Germany economic and trade cooperation, German companies can make better use of the resources and advantages of the Chinese market and achieve transformation, upgrading and sustainable development of their own business. Meanwhile, companies from both countries shall understand the challenges in Chinese-German economic cooperation. For example, the EU announced provisional tariffs on Chinese electric vehicles. The implementation of this measure will make the development of the electric car industry more challenging. The Association of the German Automotive Industry (VDA) pointed out that, on the one hand, most of the cars imported from China are produced by European companies; on the other hand, China may take countermeasures such as raising the price of raw materials and batteries for EVs. In some cases, the tariffs on European manufacturing companies and joint ventures in China may face a bigger blow than the Chinese local manufacturers.
Conclusion
To sum up, China-Germany business dynamics show the strong momentum and far-reaching potential of economic and trade cooperation between the two countries. The continuous growth and rising proportion of German enterprises’ investment in China not only consolidates the foundation of cooperation in traditional advantageous industries, but also opens up new growth points in emerging fields, injecting a strong impetus for the diversified development of Sino-German cooperation. To face the uncertainty of the global economy and geopolitical impact, Chinese and German enterprises should strengthen their communications and cooperation in order to face the challenges and seize the opportunities, and to promote the bilateral economic and trade relations towards a more prosperous and sustainable future.
