Wang Xiaoying/China Daily
Economic digitalization and green transformation are long-term developments that offer great potential for China and Germany
Economic relations between Germany and China have been mutually beneficial for both countries for decades. This is a typical win-win situation for the companies and citizens involved. Trade and investment are its driving forces.
Already in 2022, China has been Germany’s most important trading partner for seven consecutive years, but trade volumes have declined due to the weak performance of the global economy and geopolitical tensions. Merchandise trade between Germany and China increased from $25.8 billion. EUR ($27.8 billion) in 2002 will reach EUR 64.7 billion in the first quarter of 2023.
Approximately 1 million jobs in Germany depend on exports to China, and imports from China help the German economy in two ways: by supporting low prices for consumers and by supporting high value-added production by companies. . For China, German imports are contributing to the development and sophistication of Chinese industry, especially manufacturing.
German companies in China have been deeply involved in the Chinese market for decades in terms of investment, production and sales. According to data from Germany’s central bank, Deutsche Bundesbank, German companies will continue to invest in China in 2022, with total investments reaching 11.5 billion euros and more than 5,000 German companies operating in China. As an emerging middle-income country with approximately 400 million wealthy people, the Chinese market has become attractive not only as a source of cheap labor but also as a sales market.
The Chinese car market is a good example. As the world’s largest market, it has long generated high sales and profits for Germany’s major car manufacturers. The same applies to other fields such as electronics, chemistry, sports, and software.
The increasing innovative power of Chinese companies is also important for German companies’ business expansion in China. Competition is fierce, but it also motivates you to be more competitive. In a sense, China is a kind of aptitude test for German companies. And it pays off. For example, German companies sold nearly 50% more electric cars in China in 2023 than the previous year, according to a study by global accounting firm PricewaterhouseCoopers.
The Volkswagen example is instructive for innovation approaches. The company announced at last year’s Shanghai Motor Show that it would invest approximately 1 billion euros in an electric vehicle development and business center in Hefei, Anhui province. This was followed by the acquisition of his 4.99% stake in Xpeng worth €649 million. The two companies have agreed to jointly develop and produce two medium-sized electric vehicles for China.
Such innovative joint ventures are expected to shape the future of Sino-German business cooperation. There are also benefits to regional branding. Recognizing the attractiveness of the Chinese market, German companies are increasingly pursuing localization strategies not only from a supply chain perspective but also from a legal entity establishment perspective.
A recent business sentiment survey conducted by China’s German Chamber of Commerce and Industry revealed that more than 90% of companies surveyed have no plans to exit China. On the contrary, 54% plan to increase their investment in China over the next two years. This is especially true for the automotive and electronics industries and the business services sector. The majority of German companies see China as an innovative market in which they need to be present.
Although geopolitical tensions remain high, the risks of investing in China are actually not that high. Experience shows that most investments pay off within a few years. Moreover, the reputation of German companies and German products and services is still very high in the Chinese market. The biggest risk for German companies appears to be not investing in China.
Digitalization and green transition are the most important areas for the future of Sino-German business cooperation. Manufacturers in Germany and China are both increasingly digitizing and automating production. Additionally, the financial industry is also digitizing its services. The most obvious example is fintech. The third Sino-German High-Level Financial Dialogue held in Frankfurt last fall was a success, underscoring the importance of Sino-German cooperation in this field.
This also applies to the development of sustainable finance to support the green transition of both countries. During a meeting between German Chancellor Olaf Scholz and Chinese Premier Li Qiang in Berlin last summer, the two countries agreed to put the fight against climate change at the center of Sino-German cooperation.
The core elements of the business are the development of green energy technologies and industrial upgrading, especially the “new three”: solar cells, batteries and electric vehicles. A number of Sino-German agreements are already underway in this area. For example, a huge solar park near Berlin produces emission-free photovoltaic energy and uses inverters from a Chinese company to ensure stable and efficient operation of the energy system. And just at the end of last year, Beijing E-Town signed a strategic cooperation agreement with the Steinbeis Global Institute in Tübingen, Germany, on Sino-German cooperation in the green energy industry.
Digitalization and green transformation of the economy is a long-term development that will take decades. This is the biggest economic change in the past 100 years or so. Digitalization and the transition to an emissions-free economy create new opportunities for German companies in China.
The author is a professor of economics and co-chair of the China-German Center at the Frankfurt School of Financial Management, Germany. The author contributed this article to China Watch, a think tank supported by China Daily. The views do not necessarily reflect those of China Daily.
Please contact the editor at editor@chinawatch.cn.
