Mutual dependence between China and Germany? Part 2

In the first part of this article we explained the mutual dependence of China and Germany, it’s historic origins and recent challenges. Please click here to read part 1 of this article.

The Chinese government is striving to establish China in the highest parts of the global production chain, making use of a three-step plan. The first step, supposed to be accomplished by 2025, is to set foot into the range of high-end producing countries. The second step, to be reached by 2035, is to seesaw into the center of the high-end producing group. And finally, celebrating the 100-year anniversary of China in 2049, the government seeks to occupy the frontline of production technology.

While this sounds like an ambitious (and somehow utopic) plan, the Chinese government has already proven it’s envisage various times in the past. Furthermore, this time it also approaches from a more widespread attempt in comparison to the last Hu-Wen plan. The previous plan did only focus on an innovation and technology upgrade solely, zeroing e.g. in setting distinct technological standards. However, this time the challenge is to encompass the entire manufacturing process. This also implicates setting is the overall framework and is also enabled to inject financial and fiscal means to guide the market perspective in certain way.

The ten priority sectors are:

• high-end numerically controlled machine tools and robots,
• aerospace e
• new information technology,
• quipment,
• high-end rail transportation equipment,
• energy-saving cars and new energy cars,
• electrical equipment,
• farming machines,
• new materials, such as polymers,
• bio-medicine and high-end medical equipment.

Inspired by Germany’s “Industrie 4.0”

This innovation concept has strong connections to the German “Industrie 4.0” concept. Intelligent manufacturing moves on becoming a poly-discussed topic, as part of the state-of-the-art trend in industrial engineering. “Industrie 4.0” stresses the use of production process technology, enabling them to automatically adapt to changing environments and varying process requirements.

This evolution process for manufacturing various products with minimal supervision and assistance from operators is, for this blink of an eye at least, at its peak. During the past century, it has enhanced from the first idea of mass production within the economic reach for an average citizen by Henry Ford towards the capability of implementing artificial intelligence in manufacturing and production. However, the development is certainly not at its end now when taking a look at the Internet of Things (IoT). The IoT, a network of physical objects with chance to collect and exchange data among themselves, can generate aggregate large number of data from diverse locations, facilitating an indexing and processing of such data.

Therefore, the relationship between SMEs in global production can be relieved significantly. Such developments can enable them to connect more efficiently throughout long distances. Thus it benefits the mass production from an increase in efficiency and at the same time eases the production of customized products. It combines two actually reverse aspects, bringing them moving towards the same direction. We can definitely expect more from the method, also with regard to Sino-German cooperation affected by the fourth industrial revolution. The equal direction of China and Germany’s conceptual idea is definitely not out of thin air, and we can record: China and Germany will definitely not shift apart.

The future Chinese-German cooperation

In the past, German companies have invested 30 times more in China than the other way around. The recent trend though is proving a change vice versa. As matters now stand, Germany hosts about 900 Chinese investing companies. However, German companies enter the limelight of Chinese investors more and more. This disperses over several German “Hidden Champions”, such as Putzmeister, Kiekert and Solibro. What do they have in common? All of them are high-tech industries, and the list continues withnaming Schwing, Sellner or Sunways.

What we need to consider is that China and Germany, despite their longstanding relationship, differ in several aspects. This does not only refer to the language barrier. It also affects the cultural perception, economic situation and political understanding of both countries. Germany’s President Joachim Gauck also raised some of these issues in his latest China visit. He initiated talks with regards to civil rights and environmental circumstances with President Xi Jinping and Prime Minister Li Keqiang. Besides a vivid discussion about different point of views, it was more likely intended to deepen the ties between China and Germany, especially in the economic area.

The role of e-commerce

Some reasons for this stable tie are not far to seek, obviously creating employment opportunities and additional value added for both parties. It results in a stronger connection between two of the leading markets on the Eurasian continent. It also helps to develop further distribution networks. One business segment moving on the frontline of development: e-commerce and its constant skyrocketing growth (Read more…). Alibaba for example had a turnover of RMB 91.2 Billion (USD 14.3 Billion) on one day alone (Single’s Day, November 11th, 2015). This is more than the online sales of Amazon on Christmas and Boxing Day combined. And this development will not end any time soon, as the turnover on Single’s Day increased by 34% year-on-year.

Outlook: from a German perspective

Despite the positive foresight and glamorous opportunities, German companies are still worried about a possible transfer of knowledge. So do they have to fear this problem?

The Chinese investment provides an interesting opportunity for German companies. German companies trying to push a penetration into the Chinese market can be easily supported. They have a protective Chinese parent company’s hand providing them with financial aid and established distribution channels. Furthermore, the intention of Chinese companies is to establish a long-term foothold in the German market, rather than just exploiting the knowledge and leaving shards apart. This kind of investment is arguably with greater benefit than those short-term financial investments by other country’s companies. Those short-term financing can create an illusion of support but turn out to be not conducive in the long run.

Summing up, we can say that the Outward Foreign Direct Investment (OFDI) of Chinese companies in Germany extracts the strengths of each market respectively and surges a positive synergy effect. Thus, the Sino-German relationship is definitely subject to further remarkable headlines, proving to be an abutment for the next 40 years and ahead.