The German business community is optimistic about operations in
China, despite the obstacles, according to a recent survey.
The survey was conducted by German Industry and Commerce (GIC)
China and Euro Asia Consulting PartG, which focuses on China and
other Asian growth markets.
It questioned 273 businesses, including wholly owned German
companies, Sino-German joint ventures and German firms with
representative offices in China.
Topics included the characteristics of German operations,
investment motives, operational models, market potential and
barriers.
About 200 new German-backed operations are set up in China every
year. The survey found most German companies are optimistic about
the Chinese economy.
The vast majority, or 80 percent, of respondents said they had
achieved or exceeded targets. Production, trade and service firms
tend to break even within an average of four years, according to
the survey.
There are few complaints about sales momentum in China, with 86
percent of the German companies surveyed saying they were satisfied
or very satisfied with sales. Many said their businesses were
focused locally rather than export-oriented.
Low operating costs and sourcing are still favorable to
foreign-backed firms, according to the survey, despite price rises
in some areas.
The manufacturing industry still dominates German operations
based in China, but trade and service are developing very
quickly.
German small- and medium-sized enterprises (SMEs) are
increasingly seeing China as a good option, the survey said.
Of the German operations with more than 10 years of market
presence in China, 12 percent are backed by SME parent companies.
But 57 percent of German firms in China for four years or less are
backed by SMEs. Most German SMEs follow their key customers to
China, the survey said.
The expansion of the tertiary industry and the boom of SMEs are
expected to add diversity and vitality to the market.
German firms prefer to set up wholly owned operations in China
rather than joint ventures because of their strategic advantages -
such as direct control over Chinese subsidiaries, the survey
said.
Of the wholly owned German companies in the survey, 86 percent
said they wouldn't change their approach to the Chinese market. But
only 24 percent of the joint ventures said they would repeat their
business strategy, while 44 percent would maybe choose a joint
venture again.
Representative offices are no longer as useful to German firms
operating in China, with only 27 percent of respondents wanting to
open them, due to their limited functions. In 2002, that figure was
50 percent.
"As China has eliminated market entry barriers and upgraded its
economic structure, the German business community has become an
integrated and indispensable part of the Chinese economy," said
Richard Hausmann, chairman of the German Chamber of Commerce in
China.
He said GIC applauds efforts to liberalize legal restrictions to
allow foreign companies more freedom to choose the most suitable
operating model.
Recruiting and retaining qualified employees is also a
difficulty for German firms in China, with 27 percent of
respondents saying it was a major obstacle and 47 percent
considering it a problem.
Non-tariff trade barriers have improved, the survey said. But 41
percent of respondents said they still have problems in this area,
especially in terms of time and capital needed for licenses in
China.
"German operations in general are cautiously optimistic for all
areas of existing barriers to doing business in China," said
Hausmann.
Most survey respondents are positive about market potential in
China, and nearly all plan to expand business activities here.
The survey also acknowledged the contribution of German
companies to China's economic and technological progress since the
late 1970s.
The report urged policymakers to improve the investment
environment, reform the legal system and strengthen IPR protection.
It also called for better education and vocational training.
(China Daily January 30, 2008)
