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Positive Development for German Businesses in China and High Expectations for EU-China Investment Agreement

Business Confidence Survey

The German Chamber of Commerce in China, in cooperation with KPMG AG Wirtschaftsprüfungsgesellschaft, presented the results of the annual “Business Confidence Survey” today.

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  • High expectations for the EU-China Investment Agreement: Improved market access for 40 percent of respondents and equal treatment of foreign companies in the Chinese market for 39 percent of companies as key topics for CAI
  • Continuous recovery of German companies’ China Business: 77 percent of German companies expect the market to develop significantly better in China than in other economies
  • China remains an important investment location for German companies: Turnover expectations and profits forecasts for 2021 are mostly optimistic; 96 percent of respondents have no plans to leave the Chinese Market; 72 percent plan further investments
  • Decoupling tendencies accelerate localization trend: Concerns about the risks of rising costs due to different standard requirements (37%) and a slowdown of business in the long term (35%); German companies in China react with increasing localization of research and development (43%) as well as procurement (34%) and alignment of key technologies with different standards (33%)

Beijing/Guangzhou/Shanghai, 2 February 2021 - The German Chamber of Commerce in China, in cooperation with KPMG AG Wirtschaftsprüfungsgesellschaft, presented the results of the annual “Business Confidence Survey” today. The results show that German companies in China are currently optimistic for the coming year and have a strong commitment to the market, even though, complex regulatory challenges remain and competition with Chinese companies is increasing

CAI: Expectations of German Companies in China Are High

Expectations for the upcoming EU-China Investment Agreement (CAI) are high: the companies surveyed by the German Chamber of Commerce in China and KPMG stated that market access (40 percent) and equal treatment of all market participants in China (39 percent) were the main expectations for the agreement. However, the study results also showed quite positive assessments of formal market access. Compared to the previous year, fewer companies reported encountering restrictions at this first hurdle (30 percent). “The CAI makes China’s efforts and measures in terms of market opening to European companies irreversible," says Dr. Stephan Woellenstein, Chairman of the German Chamber of Commerce in North China. On the other hand, the challenges remain considerable at the indirect level. Summing up the regulatory challenges of German companies in China, administrative and bureaucratic hurdles are among the biggest obstacles: Customs regulations and procedures, obtaining the necessary licenses, the requirements of the Cyber Security Law, the Corporate Social Credit System, as well as capital transfers and cross-border payments. “The agreed institutional framework of the CAI also creates a permanent communication channel to monitor the commitments made and to address the existing challenges of our member companies. German firms expect from the CAI more legal certainty and improvements in regards to leveling the playing field" explained Woellenstein.

Continuous Recovery of German Companies in China

Despite Covid-related declines in turnover in the first half of 2020, 39 percent of German companies in China managed to increase their turnover and 42 percent their profits in 2020, according to the survey. In addition, in 2020, around 25% of the surveyed German companies in China managed to achieve turnover and profits roughly at the same level as in the previous year. “China is the only major economy that has managed to grow - even if only by about 2 percent - in 2020. German companies also benefited from this and could partially compensate for the declines in the EU and US markets due to the recovered business in China in the second half of the year," commented Andreas Glunz, Managing Partner International Business of KPMG in Germany. 

China Remains an Important Investment Location

Optimism for 2021 is evident: 77 percent of respondents expect their industry to perform better in China than in other markets. As a result, 72% of respondents expect rising turnover in China and 56% higher profits in 2021. This is also reflected in a strong commitment to the Chinese market: Almost all companies surveyed (96%) stated that they had no plans to leave China and 72 percent planned further investments in production facilities (44%) and machinery (34%) as well as in research and development (32%). According to Andreas Glunz, "many key industries in China are setting the course for future developments. A local presence is important to generate sales in the Chinese market, enter into local partnerships, or closely observe tomorrow's competitors in their home market. The German companies surveyed see great business opportunities in China, especially with innovative technologies (58%) and digital solutions (51%).“

Decoupling Tendencies Accelerate Localization Trend

The growing tensions between the US and China created additional uncertainties for German companies in China in the pandemic year 2020. In a decoupling scenario, the German companies in China are mainly concerned about the risks of rising costs due to catering to various standard requirements in the markets (37%) and a slowdown of business in the long term (35%). German companies in China respond to this development with increasing localization of research and development (43%) as well as procurement (34%) and alignment of key technologies with different standards (33%) “The economic impact of the pandemic and decoupling scenarios have accelerated the localization trend," commented Dr. Stephan Woellenstein.

About the Survey

In October and November 2020, a total of 535 member companies of the German Chamber of Commerce in China participated in the annual Business Confidence Survey. You can find further information about the latest results as well as previous surveys here.

About the German Chamber of Commerce in China

The German Chamber of Commerce in China currently has more than 2,300 members in mainland China and is the official member organization for German companies in China. By providing up to date market information and practical advice, the German Chamber helps its members to succeed in China. It offers a platform for the Sino-German business community and represents its members' interests toward stakeholders, including government bodies and the public.

About KPMG

KPMG is an organization of independent member firms with around 220,000 employees in 147 countries. KPMG in Germany is one of the leading auditing, tax and advisory firms in Germany and has around 12,600 employees at 26 locations. 

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