China: Mutual dependence between China and Germany

China is borrowing ideas from the German concept “Industry 4.0” on how to adapt its slowing economy to encourage the service and consumer sectors.

The Chinese economy has grown at an incredible pace and established itself as a key economic driver, becoming a patron for investors across the globe. One result of this development was the Sino- German bilateral trade relationship. Over the last 40 years, this has become a pillar for both sides – German innovation and Chinese progress.

However, times have changed and not for the better. The Chinese growth is slowing down, and after a decade of skyrocketing development, the Chinese government is now aiming at maintaining economic growth between 6.5% and 7% for the next year. However, it is doubtful that the government can meet this target, mainly due to low productivity, old and competitively unviable industries, enormous overcapacity and air pollution. Furthermore, the Chinese economy is shifting away from the production-based sector, focusing now on service industries to enhance domestic performance and private consumption in the future. This measure will also affect the German export industry, which is dominated by capital goods and their production.

As a result, China has conceived a new “Made in China 2025” project, an initiative to upgrade Chinese industry comprehensively. As the efficiency and quality of Chinese producers are still uneven, it will serve as an incubator for a new generation of technological standards based on a framework of guiding principles.

The government is striving to establish China at the top of the global production chain, focusing on strengthening intellectual property rights for small and medium- sized enterprises and setting clear technological standards. This innovative concept has strong connections to the German “Industry 4.0” concept. Intelligent manufacturing is becoming a keenly discussed topic, as part of the state-of-the-art trend in industrial engineering. “Industry 4.0” stresses the use of production process technology, enabling it to adapt automatically to changing environments and varying process requirements. Thus, the relationship between SMEs in global production can be facilitated significantly, enabling them to connect more efficiently over long distances. We can definitely expect more from this method, also with enter the Chinese market can be easily supported, as they have a protective Chinese parent company’s hand providing them with financial aid and established distribution channels. Furthermore, Chinese companies are looking to establish a long-term foothold in the German market, rather than just exploiting the knowledge acquired. Summing up, we can say that the outward foreign direct investment policy (OFDI) of Chinese companies in Germany exploits the strengths of each market and creates positive synergy. Thus, the Sino-German relationship will continue to make remarkable headlines, proving to be a stable pillar for the next 40 years and ahead. regard to Sino-German co-operation. The parallels between China’s and Germany’s conceptual ideas are not a coincidence, and China and Germany will definitely not drift apart.

Investment in China continues to provide an interesting opportunity for German companies. German companies trying to enter the Chinese market can be easily supported, as they have a protective Chinese parent company’s hand providing them with financial aid and established distribution channels. Furthermore, Chinese companies are looking to establish a long-term foothold in the German market, rather than just exploiting the knowledge acquired.

Summing up, we can say that the outward foreign direct investment policy (OFDI) of Chinese companies in Germany exploits the strengths of each market and creates positive synergy. Thus, the Sino-German relationship will continue to make remarkable headlines, proving to be a stable pillar for the next 40 years and ahead.

“China has conceived a new ‘Made in China 2025’ project to upgrade Chinese industry comprehensively. As the efficiency and quality of Chinese producers are still uneven, it will serve as an incubator for a new generation of technological standards based on a framework of guiding principles.”
Jakob Loibl business advisor, FDI expert, Ecovis, Beijing, China

Author:
Jakob Loibl business advisor, FDI expert, ECOVIS Beijing, China
jakob.loibl@ecovis-beijing.com