And the report, which surveyed 566 member companies in October from industries including machinery and industrial equipment, automotive and business services, found that 91 percent of companies plan to continue doing business in China.
‘Growth nothing to write home about’: 7 takeaways from China’s economic data
‘Growth nothing to write home about’: 7 takeaways from China’s economic data
Despite a 40 percent increase in the number of foreign-invested start-ups in 2023, bringing the total number to 53,766, the actual yuan-denominated foreign capital employed fell 8 percent year-on-year to a three-year low of 1. 1 trillion yuan (US$155 billion), according to the Ministry of Commerce.
“If we ask companies now, and I just did this, companies are, I would say, a little less optimistic than they were in October,” said Jens Hildebrand, executive director of the North China branch of the German Chamber of Commerce in China.
The survey showed that German companies operating in China face a number of challenges, including increased competition from local companies, unequal market access, economic difficulties and geopolitical risks.
A third of respondents consider legal uncertainty to be the most significant regulatory challenge.
The current regulatory environment undermines the competitiveness of German companies
More than half of firms involved in public procurement – selling goods and services to governments and state-owned enterprises – faced obstacles such as a lack of transparency and “Buy China” policies, the report found.
“Last year was a reality check for German companies operating in China,” said Wolf Reinhardt, chairman of the German Chamber of Commerce in China – South and Southwest China.
“The current regulatory environment is undermining the competitiveness of German companies that are determined to succeed and exploit the country’s innovative potential.”
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China’s GDP: Beijing’s long to-do list to boost economy in 2024
After a disappointing 2023, when only 21% of German companies expected positive industry development, the share doubled to 42% in 2024, with 78% expecting constant growth over the next five years.
German companies believe that market growth will depend on solving key structural problems, Reinhardt added.
“The potential of the Chinese market is still there, but the attractiveness of the Chinese market is changing, making a profit in China is not as easy as it was in the past because the market has changed. There are still opportunities as well as challenges and risks,” he said.
In the automotive sector, 11 percent of companies see their Chinese rivals as innovation leaders, with 58 percent expecting the firms to take over the role in the next five years, the report showed.
A renewed deal between China and Germany is helping Beijing gain a foothold in the West
A renewed deal between China and Germany is helping Beijing gain a foothold in the West
But due to the growing risks of doing business in China, including geopolitical tensions and uncertain economic developments, nearly half of the companies surveyed said they had taken steps to strengthen risk management.
The steps include building China-independent supply chains, establishing additional operations outside of China, but also locating research and development operations in China.
Amidst the emergence of strong competitors in China, the German Chamber of Commerce in China called on Chinese policymakers to create a true level playing field for foreign businesses by implementing measures that promote fair competition and strengthen investor confidence.
“There needs to be confidence building for investment to happen again, what we need for that is improved legal certainty and transparency,” Hildebrand added.
“It is important to simplify cross-border data transfer, but also in other areas where the language is unclear in laws and regulations. Intellectual property protection is also another topic that will not go away.”
