German firms’ China market sentiment falls to record low, survey shows

6:05 am Wednesday, December 04th, 2024

BEIJING (Reuters) – Business sentiment among German companies in China is at an all-time low, a German business lobby group said on Wednesday, as they face rising Chinese competition and a slowing economy.

Over half of German companies said conditions in their industry had worsened this year, the German Chamber of Commerce in China said citing a survey, while only 32% forecast an improvement in 2025 – the lowest since records began in 2007.

“This year has been difficult for the majority of German companies, prompting a downward adjustment of their business outlook,” said Clas Neumann, chair of the German Chamber of Commerce’s east China chapter, while adding that 92% of German companies planned to maintain their operations in the $19 trillion economy.

Germany is China’s biggest European partner, and prominent German firms with large investments in China include automakers Volkswagen as well as BMW and auto parts supplier Bosch.

The German survey comes just a day after a British sentiment survey of companies operating in China painted a downbeat picture.

While foreign direct investment, seen as a signal of confidence in China, represents only 3% of its total investment, it has been falling for two straight years.

The chamber said investing to keep up with local competitors was the primary motivation for 87% of the 51% of German companies planning to step up their investment in China over the next two years, an annual eight percentage point increase.

The chamber also said that companies were, for the first time, reporting that they were contending with a “Buy China” trend, with Chinese President Xi Jinping’s self-sufficiency drive “Made in China 2025” resulting in local customers opting to buy from local producers.

An official factory activity survey released on Saturday showed that new import orders for parts and components used in finished goods fell for an eighth consecutive month in October, while new orders expanded for the first time in seven months.

The chamber called on Berlin to place more emphasis on Beijing as a partner and revise its China strategy to better align with German industry’s desire to invest more in localisation in China over boosting exports to the market.

Berlin opposed the European Commission’s tariffs of up to 45.3% on Chinese-built electric vehicles in an October vote. German automakers have heavily criticised the EU measures, aware that possible higher Chinese import duties on large-engined gasoline vehicles would hit them hardest.

Volkswagen signalled last week that it was doubling down on its China investment by extending its partnership with Chinese partner SAIC by a decade, though it sold its operations in Xinjiang after years of mounting pressure.

(Reporting by Joe Cash; Editing by Muralikumar Anantharaman)