German Überzeugt in China

“In all my years of dealing with China, I can’t remember a single year without some Western journalist predicting the imminent collapse of the Chinese economy,” says Michael Schumann, chairman of the Board of the German Federal Association for Economic Development and Foreign Trade (BWA). “So far, these kinds of forecasts have all proven to be wrong.”

Schumann sees the growth target of around five percent announced by Chinese Premier Li Qiang in his government work report during the National People’s Congress as a positive sign.

“I believe in further growth of the Chinese economy, provided that the global situation does not deteriorate further.”

But one thing is certain: China remains an important barometer of global economic sentiment, which is why the “Two Sessions” are always the cynosure of all eyes.

A glance at the market developments in China gives clear cause for optimism: Despite numerous risks and challenges arising from the complex and unpredictable international situation last year, the figures prove that China’s economy was clearly on course for recovery in 2023.

The GDP increased by 5.2 percent to over RMB 126 trillion in 2023 compared to the previous year, which was one of the highest growth rates of all major economies in the world.

“Stable growth in China is stabilizing the whole global economy, which is in a difficult situation due to the current crises right now,” Schumann says, emphasizing the importance of a growing Chinese economy.

More Investment Than Ever Before 

According to the Federal Statistical Office of Germany, trade between China and Germany in 2023 crossed €253 billion, making China Germany’s largest trading partner for eight years in a row. Data from the German central bank showed direct investment from Germany in China reached a record high of €11.9 billion last year – an increase of 4.3 percent compared to 2022. German companies made as many new investments in China between 2021 and 2023 as in the six years from 2015 to 2020. China attracted 10.3 percent of all German direct investments abroad in 2023 – the highest figure since 2014. The data send out an important message: ties between the two major economies are still as close as ever, despite the global headwinds. China clearly remains an important investment destination for German companies.

According to Schumann, German companies’ high investment volumes in China prove that the economic relations between the two countries still have a solid foundation. He attributes this especially to China’s positive business environment. One particular attraction of the Chinese market is China’s innovation culture, he says. “The omnipresent digitalization and China’s excellent infrastructure are two further crucial factors.” This mix has created attractive production conditions in China.

“Apart from that, we in Germany have observed promising approaches to further opening up to the outside world from the Chinese side over the past year, which I hope will be expanded even more in the future,” he says. He gives the example of the suspension of visa requirements for German citizens. “This has made things much easier for German companies doing business in and with China,” he says.

In view of increasing global risks in the supply chains, more and more German companies in China are analyzing how to make their production sites in China more self-sufficient and better secure them, he said.

For example, Volkswagen (China) has established its largest development center outside Germany in the city of Hefei in the central Chinese province of Anhui with an estimated total investment of €1 billion. It covers the entire value chain for new energy vehicles, from research and development to production, sales, and services. The Siemens Group is also following this path. The Siemens R&D center for industrial software has recently gone into operation in Shenzhen in south China.

Since it was founded 21 years ago, the BWA has provided targeted support for Chinese-German economic relations. Last year, the association recorded a significant surge in cooperation activities, particularly at company level and in municipal cooperation. From this, Schumann concludes that there is still great development potential for the German business community in China, especially in future-oriented areas such as environmental technology, biological sciences, and life sciences.

He rates the mood of German companies investing in China as very positive. Companies are confident about China as a business location, which is borne out by the results of the latest Business Climate Survey 2023/24 conducted by the German Chamber of Commerce in China. The report says 54 percent of the 566 member companies surveyed plan to continue their investments in China.

More Exchange and Understanding, Less Risks 

In German politics, however, the current buzzword is “de-risking.” The German government has called on domestic companies to reduce their dependency on China. Schumann thinks there should be a greater sense of proportion. Declaring a country that has enjoyed such friendly relations with Germany for such a long time a “risk” across the board shows little knowledge of China and is the wrong approach, in Schumann’s opinion.

In the slipstream of the de-risking discussion, a new debate has recently flared up in Germany about German companies investing in Xinjiang in northwest China. Schumann sees this as being driven by some politicians and media. A few years ago, he went to Xinjiang and witnessed how economic investments are improving the lives of the locals.

“Those who are now questioning this commitment by foreign companies in Xinjiang would have to explain to me how the local people, whose welfare the critics claim to be concerned with, would be helped if the newly created job opportunities were taken away from them,” he says. “What we need is more commitment, not less. We need cooperation instead of confrontation, more exchange and understanding, despite living in different political systems.”

Schumann thinks it is important to give German entrepreneurs a realistic picture of their opportunities in China. His advice to businesspeople is to familiarize themselves with the country first-hand. Unfortunately, this is currently being made difficult by the negative reporting in many Western media. However, there is something to be optimistic about: German Chancellor Olaf Scholz’s planned China visit in April. “I … hope the planned China visit by Chancellor Olaf Scholz accompanied by a German business delegation in mid-April will provide new positive impetus,” he concludes.