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German Business in China

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German Business in China

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The German Chamber Business Confidence Survey is a key gauge measuring the business sentiment of German companies operating in China. As of 2014 the German Chamber of Commerce in China has nearly 2,400 member companies, representing about 50% of German business in the Middle Kingdom. The survey was conducted between May and June 2014.

The German Chamber Business Confidence Survey is a key gauge measuring the business sentiment of German companies operating in China. As of 2014 the German Chamber of Commerce in China has nearly 2,400 member companies, representing about 50% of German business in the Middle Kingdom. The survey was conducted between May and June 2014.

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German Business in China

  1. 1. Business Confidence Survey 2014 German Business in China – Press Conference Lothar Herrmann | 19.06.2014
  2. 2. Page 2 19.06.2014 Content German company profiles Market importance Market environment Business challenges Business outlook 2014 Conclusion Q & A 1 2 3 4 5 6 7
  3. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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. 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

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