South China Morning Post

GERMAN FIRMS ‘FACE UNFAIR SYSTEM’

Two-thirds of companies in commerce chamber survey call playing field with domestic rivals uneven

- Kinling Lo kinling.lo@scmp.com

German businesses in China have reiterated their calls for a level playing field, with two-thirds of those surveyed experienci­ng “unfair competitio­n” when operating there – findings that add to pressure on Beijing from foreign investors over struggles related to market access and capacity.

The survey by the German Chamber of Commerce in China was released ahead of Chancellor Olaf Scholz’s visit to China next week.

The two countries have continued to stress the importance of economic ties, despite Berlin’s talk of “de-risking” and complaints from the West over the Chinese state subsidies it has claimed create overcapaci­ty in industrial products.

“Chinese and German firms are increasing­ly becoming close competitor­s – both in China itself and in global markets. This is the reality that German companies must prepare for,” said the report, released yesterday.

“The sluggish developmen­t of the Chinese economy coupled with the emergence of local competitor­s has made the issue of unfair competitio­n in China more pronounced.”

Two-thirds of the 150 companies surveyed from February 22 to March 6 said they faced unfair competitio­n operating in China, Germany’s largest trading partner, reflecting the latest difficulti­es perceived by foreign businesses there – a topic likely to take precedence in the German leader’s meetings.

The businesses surveyed – 29 per cent from the manufactur­ing sector and 20 per cent from carmakers – said they were most confident in their product quality, technologi­cal leadership and strength in innovation compared to Chinese competitor­s. However, they saw weaknesses in cost efficiency, time to market readiness and innovation speed when measured against local firms.

Market access – particular­ly access to lucrative networks like government authoritie­s, universiti­es and public tenderers – were seen by respondent­s as the most pressing competitiv­e disadvanta­ges.

Maximilian Butek, executive director of the German Chamber of Commerce in East China, said the survey showed a change in approach by the companies.

“They now invest not for the sake of growth, but rather to remain or become more competitiv­e,” he said.

Fifty-two per cent of those surveyed said their primary competitor­s were private Chinese companies, 37 per cent named other foreign companies and 11 per cent said Chinese state-owned companies were their strongest rivals.

Butek noted that the results showed 11 per cent of German carmakers said they saw their Chinese competitor­s as leaders in innovation, and 58 per cent of them expected domestic carmakers to take on that role over the next five years.

“Why do you need to protect an industry where local companies are fully empowered to compete with internatio­nal markets?” he asked.

The most frequently mentioned downsides to heightened competitio­n within China were increased cost pressures, reduced profit margins and lower market share, but 79 per cent of respondent­s said they still planned to keep up their investment­s.

Beijing has attempted to bring in foreign investment to buoy confidence after a slower than expected economic recovery last year. A number of foreign chambers have flagged market access, vague regulation­s and tensions with the United States as top concerns when considerin­g new or deeper involvemen­t in China.

Berlin introduced a China strategy last summer that urged businesses to “de-risk” from the country, a change from previous policy following similar shifts among its allies in the Group of Seven and European Union.

Beijing has called the strategy counterpro­ductive and accused the German government of protection­ism.

Bilateral trade in goods between the two economies crested ¤250 billion (HK$2.13 trillion) in 2023, according to official figures – with China retaining its status as Germany’s top trading partner – but that sum represente­d a decrease of 15.5 per cent from the previous year. However, German direct investment in China rose to a historic high of ¤11.9 billion last year, according to a report from the German Economic Institute think tank.

Berlin has been on the forefront of several of the economic and trade issues that have contribute­d to increasing­ly frosty relations between the West and China.

Last year, the EU launched an anti-subsidy inquiry into China’s electric vehicle industry, leading German carmakers to voice worries Beijing would launch retaliator­y tariffs.

Chinese and German companies are increasing­ly becoming close competitor­s FROM THE CHAMBER’S REPORT

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