Theresa Stubhan – 14 Dec, 2020 European Perspective

The coronavirus pandemic caused massive supply chain disruptions and travel restrictions, which has hampered the flow of goods and people between Germany and China – amplifying the current challenging economic environment which puts unprecedented pressure on the Sino-German economic cooperation.

Nevertheless, China remains a strong partner as Germany’s third largest export destination and recent investment projects of Chinese battery cell producers CATL and SVolt demonstrate Germany’s attractiveness for Chinese investors.

Sino-German FDI amidst the coronavirus pandemic

While the coronavirus pandemic has led to a global decline of FDI, China defeats this trend: Despite the pandemic, FDI into China during the first nine months of 2020 showed a 2.5 percent increase compared to the previous year. In the month of September, FDI even showed a 25% increase over last year.

Reaffirming their trust in the market, German companies in China are continuing to significantly expand their business investments. Throughout the year, we have observed resilience in German FDI to China especially in the Automotive and Chemicals sectors.

To highlight a few key investments:

  • Volkswagen set up a new Competence Center in Hefei (Anhui Province) which will serve as global knowledge and production hub situated in the region’s e-mobility cluster. With R&D, quality management, Simultaneous Engineering as well as preproduction series in one place it marks the beginning of a new era of technological leadership and excellence “made in China”.
  • Despite coronavirus induced setbacks, carmaker BMW announced that it would ramp up investments in China. In July, BMW and the Chinese tech giant Tencent announced a digital cooperation to integrate WeChat (China’s most popular social media app, developed by Tencent) into BMW’s iDrive system.
  • Chemicals company Wacker launched a $100 million investment in its site in Nanjing, more than doubling the site’s current production capacity.
  • Pharmaceuticals specialist Bayer is investing in the construction of a new production and supply plant in Beijing to meet demand on the Chinese domestic market.
  • Retail chain Aldi is further pursuing its strategic expansion in China, opening four new stores in September, November, and December 2020.

The importance of identifying the right strategy and the right partner

A prime example of successful Sino-German economic cooperation is the German engine producer Deutz. In 2018, Deutz CEO Hiller pulled out of the company’s previous, unprofitable Joint Venture with FAW. Instead of giving up the market, he re-designed the company’s China strategy from scratch. Deutz is now operating with not just one, but three Chinese partners. At the heart of this new strategy is a Joint Venture with Chinese engineering company Sany. With the new strategy, China Business is going so well that Deutz raised their revenue target for 2022 from €500 million to €800 million – in the middle of the coronavirus crisis.

Assessing the Challenges and Opportunities brought about by the New Situation

The willingness and commitment of both government institutions and companies to the Sino-German bilateral economic cooperation is underscored by recent successful events, such as the 4th Sino-German Mittelstandsforum (forum of medium-sized enterprises). The event was hosted by the German federal association for medium-sized enterprises BVMW (Bundesverband der Mittelständischen Wirtschaft) and the Municipality of Taicang with high-level contributions from government leaders such as Dr. Bernd Althusmann – Lower Saxony Minister of Economic Affairs, Employment, Transport and Digitalisation. Overall, it brought more than 200 government and industry representatives from Germany and China together. The participants agreed to strengthen and foster the bilateral relationship and economic cooperation further in the coming years.

 

Contact us for realising your Sino-German business objectives

Knowing the market, regulations and business culture are prerequisites for success on the Chinese market. With OCO’s China expert teams in Shanghai and Europe we help companies Assess, Enter, and Grow in the Chinese market. For questions or support reach out to our multilingual staff. OCO China General Manager Yi Zhang (yi.zhang@ocoglobal.com) in Shanghai, Theresa Stubhan (theresa.stubhan@ocoglobal.com) in Frankfurt or Marine L’herrou (marine.lherrou@ocoglobal.com) in Paris.