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German Business in China
The 2014 business confidence survey indicates that German companies in China are experiencing stable conditions despite slower economic growth, with a majority operating in China for over a decade. Key challenges include HR issues and slow internet speed, though the impact of government reforms is perceived positively. Overall, the sentiment remains cautiously optimistic with moderate growth in turnover and profits expected.
German Business in China
- 1. Business Confidence Survey2014 German Business in China – Press Conference Lothar Herrmann | 19.06.2014
- 2. Page 2 19.06.2014 Content Germancompany profiles Market importance Market environment Business challenges Business outlook 2014 Conclusion Q & A 1 2 3 4 5 6 7
- 3. Page 3 19.06.2014 1.German company profiles • Survey conducted from May 12th to June 6th 2014 • Response rate 17.4% or 417 companies • Regional and industrial distribution of companies remains stable Geographic distribution Industry segments Shanghai 42.0% Other East 12.5% Beijing 20.9% Other North 7.7% Pearl River Delta 17.0% 7% 1% 1% 2% 3% 3% 3% 3% 4% 5% 5% 6% 6% 9% 14% 26% Other Tourism Aerospace Environmental Products/Services Medical Supplies Logistics IT/Telecommunications Consumer Goods Construction Finance/Insurance Plastic/Metal Products Electronics Chemicals Consulting/Legal Services Automotive Machinery/Industrial Equipment
- 4. Page 4 19.06.2014 •55% of local operations have under 250 employees • 66% with turnover under RMB 250 Million • SMEs dominate German business in China 1. German company profiles 17% 26% 23% 10% 11% 13% 0% 5% 10% 15% 20% 25% 30% 35% 40% <5 Million 5-50 Million 51-250 Million 251-500 Million 501-999 Million >1 Billion Number of employees Annual turnover in RMB 36% 29% 23% 5% 7% 0% 5% 10% 15% 20% 25% 30% 35% 40% < 50 50-250 251-999 1000-2999 >3000
- 5. Page 5 19.06.2014 •Legal structure is stabilizing, with 67% of companies registered as WFOEs • For the first time majority of companies have operated in China for over 10 years 1. German company profiles 67% 12% 8% 8% 6% 0% 10% 20% 30% 40% 50% 60% 70% 80% Legal form Years in China 55% 5% 8% 7% 25% 27% 28% 0% 5% 10% 15% 20% 25% 30% < 2 2 - 4 5 - 6 7 - 9 10 - 15 > 15
- 6. Page 6 19.06.2014 •Despite slower economic growth in China, importance of global business is increasing • China remains a key source for growth of global profit and turnover development 57% 50% 60% 51% 61% 56% 0% 10% 20% 30% 40% 50% 60% 70% Turnover Profit 2012 2013 2014 2. Market importance China as top market for German parent company in global business
- 7. Page 7 19.06.2014 •German companies operate in China for the Chinese market • Importance of exports to Europe continue to decline • Exports to other Asian markets are stable at low levels 2. Market importance China is the most important market for local operations 64% 75% 77% 29% 18% 17% 7% 7% 7% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 2012 2013 2014 Mainland China Europe Other Asia
- 8. Page 8 19.06.2014 •Central government initiated reforms widely seen as positive • Impact on future investment decisions is uncertain 5% 4% 7% 9% 11% 10% 15% 13% 18% 18% 22% 31% 34% 35% 39% 42% 39% 46% 48% 51% 0% 10%20%30%40%50%60%70%80% Reducing industrial over capacities Interest rate liberalization RMB exchange rate liberalization Reduction of red-tape Increased urbanization Improved rule of law Anti-corruption drive Increased role of markets Improved environmental protection Expanding domestic consumption very positive impact positive impact 3. Market environment 4% 34% 49% 12% 2% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% very negative negative neutral / no impact positive very positive Impact of government policies Impact on future investment
- 9. Page 9 19.06.2014 •HR topics remain the most prominent challenge, but major challenge for smaller share compared to previous years • Slow internet most significant non-HR topic • Corruption with biggest fall, dropping from 5th position to 10th 49% 50% 54% 56% 58% 59% 59% 67% 74% 75% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Corruption Preferential treatment of local companies Increasing commodity and energy prices Domestic protectionism Protection of intellectual property Bureaucracy/administrative hurdles Slow internet speed Retaining qualified staff Finding qualified staff Increasing labour costs 2014 2013 2012 4. Business challenges Top 10 business challenges
- 10. Page 10 19.06.2014 •HR issues decreasing from high level • Impact from industrial action remains low but increasing • Internet speed and domestic protectionism on the rise • IPR issues continues to become more significant 4. Business challenges -5.8 -4.1 -1.9 9.6 8.9 6.4 5.8 -8 -6 -4 -2 0 2 4 6 8 10 12 Slow internet speed Domestic protectionism Industrial action/strikes Protection of intellectual property Biggest changes amongst challenges 2013-2014* Retaining qualified staff Finding qualified staff Increasing labor costs Increasing Decreasing *change in percentage points
- 11. Page 11 19.06.2014 •94% of German companies report facing Chinese competition • 70% expect competitive pressure from Chinese companies to increase 94% 88% 73% 68% 60% 59% 51% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 4. Business challenges Increasing 70% Unchanged 23% Decreasing 1% Not a competitor 6% Origin of competition Development of competition
- 12. Page 12 19.06.2014 •Competitive pressure from Chinese innovation has limited impact • For vast majority IPR confrontation initiated by local companies has no effect 4. Business challenges 19% 33% 27% 4% 3% 3% 45% 43% 50% 0% 10% 20% 30% 40% 50% 60% 2012 2013 2014 Increasing Decreasing No effect 8% 10% 2% 9% 15% 73% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 2012 2013 2014 Expected competition in the next 3 years IPR confrontation
- 13. Page 13 19.06.2014 5.Business outlook 2014 • German companies perceive economic environment similar to 2013 • Evaluation of economic conditions remains cautiously positive • Automotive sector most positive 8% 7% 9% 22% 41% 40% 43% 38% 34% 23% 13% 17% 4% 2% 1% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2012 2013 2014 Significantly worsening Worsening Neutral/unchanged Improving Significantly improving 75% 42% 46% 4% 21% 19% 0% 10% 20% 30% 40% 50% 60% 70% 80% Automotive Machinery Other Improving Worsening Evaluation of economic environment ….by industry
- 14. Page 14 19.06.2014 5.Business outlook 2014 • General business sentiment remains positive for 2014 • Higher share expect to exceed targets compared to previous years • Anticipated impact of slowdown for 2014 less severe Exceed 23% Achieve 36% Mostly achieve 23% Partly achieve 14% Not achieve 4% 12% 32% 14% 21% 23% 17% 0% 5% 10% 15% 20% 25% 30% 35% Exceed Not or partly achieving 2012 2013 2014 Expectations on reaching business targets ….compared to previous years
- 15. Page 15 19.06.2014 5.Business outlook 2014 • German business on stable footing with growth moderation setting in • Higher share of companies expect increasing turnover • Similarly a higher share report increasing profits • Share of companies reporting growth >25% decreasing Change in expected turnover Change in expected profit 21% 16% 13% 14% 17% 23% 30% 37% 38% 21% 21% 20% 15% 9% 7% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2012 2013 2014 Decrease Similar Increase (+4-14%) Significant increase (+15-24%) Increase >25% 12% 8% 10% 12% 12% 14% 29% 35% 36% 28% 30% 28% 19% 16% 12% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 2012 2013 2014 Decrease Similar Increase (+4-14%) Significant increase (+15-24%) Increase >25%
- 16. Page 16 19.06.2014 5.Business outlook 2014 • Revenue growth levels correlate to years companies have operated in China • Turnover growth moderation set in after 5th year for most companies • Rapid growth remains possible for newcomers • Higher base of established companies translate into slower growth rates Share of companies with turnover growth >25% by years in China 38% 39% 23% 13% 9% 4% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% < 2 2 - 4 5- 6 7 - 9 10 - 15 > 15
- 17. Page 17 19.06.2014 •Majority plan to expand employment levels, but new employment is cooling • Investment plans remain stable, but majority holding investment constant 5. Business outlook 2014 58% 61% 50% 33% 32% 40% 9% 8% 10% 0% 10% 20% 30% 40% 50% 60% 70% 2012 2013 2014 Increase Similar Decrease Expected employment plans 2014 Expected investment plans 2014 44% 48% 48% 45% 50% 44% 41% 47% 7% 8% 11% 8% 0% 10% 20% 30% 40% 50% 60% 70% 2011 2012 2013 2014 Increase Similar Decrease
- 18. Page 18 19.06.2014 •Fewer companies plan to invest in new cities until 2017 • Companies more risk averse with investment decisions • Following key customers and regional diversification main reasons companies plan new investments in new cities 48% 35% 17% 30% 46% 24% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50% Yes No Maybe 2013 2014 5. Business outlook 2014 46% 21% 13% 11% 4% 4% 2% 64% 41% 26% 12% 8% 8% 3% 0% 10% 20% 30% 40% 50% 60% 70% 2013 2014 Investment plans for new locations Motivation for investments
- 19. Page 19 19.06.2014 Shanghai 14.2% Beijing 11.3% Chengdu 8.3% Guangzhou 8.6% Shenzhen 6.2% Shenyang 2.7% Chongqing 6.8% Nanjing 2.7% Suzhou 3.9% Tianjin 3.8% •Yangtze Delta, Bohai Rim, Pearl River Delta most attractive for over 50% • Chengdu and Chongqing most likely to become next German business hub • Central and North East Region less attractive Top 3 New in 2014 Wuhan 5.1% 5. Business outlook 2014 Top 10 locations companies plan to invest within the next 3 years
- 20. Page 20 19.06.2014 6.Conclusion • German companies performing robustly • Business sentiment generally positiveBusiness outlook • Turnover and profits growth at more moderate levels • For the first time over 50% operate in China for over 10 years, operating from higher base level with lower growth Moderation of growth • Majority of companies perceive government reforms as positive • Effect on future investments remains to be determined Economic reforms •HR issues remain top 3 challenge, but decreasing •Slow internet and IPR issues increasing •To be watched: labor disputes Challenges