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German companies in China: Business as usual won’t work any longer

German companies doing business in China are increasingly pessimistic. Nevertheless, the Chinese economy could still get by with few ill effects, despite slowing growth. The fat years in China are over. This is increasingly clear to German companies looking at their order books and assessing the depressing data released month by month in Beijing.

On Monday, growth figures for the third quarter were published. At 6.9 percent, gross domestic product grew slightly more strongly than analysts’ expectations, but was still lower than at any time in the past six years. The previous week, the authorities announced disastrous trade figures by Chinese standards, falling by 8.8 percent in September after previous declines.

Imports were particularly hard hit, falling for the 11th month in a row and down 17.7 percent compared with the same month a year ago. “Even if hardly anyone believes there will be a hard landing, downward pressure over recent months was stronger than we would like,” said a manager of one of Germany’s larger companies active in China. The German Chamber of Commerce also found increasing gloom in a recent survey of German companies.

Around half of those polled indicated that they had corrected downwards their targets for China. As many as 62.7 percent said that current economic conditions were having a negative impact on their business. Munich-based business consultants Roland Berger are also predicting an impact on Germany and Europe as a whole from weaker Chinese growth. According to a study conducted by the company, China grew almost three times as fast as the global economy for two decades and is currently responsible for 40 percent of global economic growth.

According to the study, exports by European companies to China have risen by 164 billion euros (186 billion dollars) over the past five years, making China Europe’s second biggest trading partner. “If the Chinese growth driver begins to stutter, the positive impulse on other countries thus far could rapidly become negative,” Roland Berger’s Tobias Raffel said. Nevertheless, analysts do not expect weak Chinese growth to push the German economy into the abyss.

The Dusseldorf-based Hans Boeckler Stiftung – an economic research foundation linked to the German trade union movement – estimates that a further weakening in China could knock at most 0.2 percentage points off German growth this year and at most 0.3 percentage points next year. With German growth forecast at 1.8 percent, this would be “unpleasant, but manageable for the German economy as a whole,” says the foundation’s Gustav Horn. “A few years ago, a collapse in Chinese economic growth would have had a much greater impact on Germany.”

Domestic demand, along with strong demand for German products in the United States, Britain and members of the Eurozone, has had a stabilising effect. But even if other parts of the world make up for a decline in Chinese demand, German companies cannot continue with “business as usual,” in the view of Roland Berger’s Burkhard Schwenker.

While Beijing is working on a new five-year plan to put the Chinese economy on a different footing and to shift domestic companies from low-cost production to innovation, German companies nevertheless face new problems, even if these reforms bear fruit. “Then they will soon have new Chinese competitors, and the number of Chinese global market leaders will rise sharply,” Schwenker says.

Joern Petring, "German companies in China: Business as usual won’t work any longer," Business recorder. 2015-10-21.
Keywords: Economics , Economic issues , Social conditions , Business enterprises , Economic growth , German economy , International relations , Production management , Globalization , Business , China , German , Europe