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Why Do German Enterprises Hold China in High Regard?

Photo: Reuters

A recent report from the German Institute of Economics indicates that German investment in China made up 10.3% of its total foreign investment in 2023, the highest since 2014. German corporations perceive China as a vast and burgeoning market and are planning to expand their operations within the country. Based on recent reports and data from German governmental and research institutions, Sino-German economic and trade cooperation has not only stabilized but is also on an upward trajectory. German enterprises are not just maintaining their presence in China; they are actively accelerating their market penetration. What are the driving factors behind this German influx into the Chinese market? Let’s explore the sentiments and strategies of German businesses and entrepreneurs on the ground in China.

Settling into the “Hometown of German Enterprises”

In the Taicang High-Tech Zone, Nanjing East Road is peppered with bus stops bearing the names of German companies like Kern-Libers, Tongkuai, Heine, and Tonks. Within a 4-kilometer radius from the “Kern-Rebus Station,” over 40 foreign-funded enterprises have found a home. Boarding bus 103, one can source the entire electric drive system for a new energy vehicle. The confidence to “find 70% of a car’s parts in Taicang” stems from the robust presence of “Made in Germany,” with more than 500 German companies, 70% of which are in the automotive sector, clustered in the area. Kern-Libers, a renowned spring manufacturer and a Volkswagen supplier, took its first tentative steps in Taicang in 1993. Starting with just six employees in a 400-square-meter rented facility, the company has since expanded its investment in Taicang elevenfold. It now boasts a 70,000-square-meter self-built plant with an annual output value of 1.5 billion yuan, representing its largest global share.
Kern-Libers’ establishment marked the beginning of Taicang’s collaboration with German enterprises, which has since grown to over 500 German companies. A German proverb, “An individual’s effort is arithmetic, while a team’s effort is geometric,” aptly describes the accelerating pace of Sino-German cooperation in Taicang. It took 14 years for the first 100 German companies to set up in Taicang, whereas the jump from the 400th to the 500th took just two years. Statistics reveal that over 90% of early German investors in Taicang have increased both their capital and production.
Shen Ya, Vice-Chairman of the European Business Investment Enterprise Association of the Taicang High-Tech Industrial Development Zone, notes that since 2001, German companies have been establishing themselves in Taicang at an almost weekly rate. “You can constantly see the colorful ribbon-cutting ceremony balloons floating into the sky, symbolizing a flourishing era,” he says. Tongkuai, the eighth German company to settle in Taicang, has expanded its factory floor area to 40,000 square meters and employs over 1,000 staff. During the pandemic, Tongkuai’s sales in China hit a record high, with China becoming its largest foreign market outside of Germany.
The Julang Group, a German machine tool giant, has seen its business volume in China increase by 300% and its factory size triple since its initial investment in Taicang in 2012. The company has fully localized its production, R&D, sales, and service operations. Willy Rister, CTO of Billow Khyron Machine Tool (Taicang) Co., Ltd., credits the local government’s diverse services and favorable business environment for supporting foreign companies’ growth in China. “We are fully confident in our operations in China, with a stable business outlook for 2024 and an expected growth of 20% to 30%,” he says.

The “Business” Environment of Rooting in the China Market

Locals often say, “A good biluochun (a type of Chinese chrysanthemum) is planted under a big tree.” For businesses like Taicang, which is considered the “biluochun,” Shanghai is the “big tree.” The strategic location near Shanghai and convenient transportation are key factors that initially attracted most German enterprises to Taicang. Zhang Zhenwei, Chairman of the European Chamber of Commerce in Taicang, mentions that some German enterprises find manufacturing in large cities less suitable, favoring smaller towns that can match the logistics, market, and infrastructure of larger cities. Taicang, with both rural charm and urban amenities, stands out in the Yangtze River Delta region.
Taicang’s proximity to Shanghai’s city center—just 50 kilometers away—and its status as the largest container port on the Yangtze River, with a 2023 container throughput exceeding 8 million TEUs and cargo throughput surpassing 270 million tons, make it an ideal base for businesses. Huo An, General Manager of Etech Europe Electronic Devices (China) Co., Ltd., who has resided in China for over a decade, praises the abundant workforce, talent pool, and robust supply chain in Taicang. The city’s tranquil and serene pace of life often reminds him of his hometown in Germany. He has now married and settled in Taicang, becoming a local “foreign son-in-law.”
“The quality of the water is best judged by the health of the fish within it,” says a leader of a Huade enterprise, reflecting on how Taicang’s location and business environment serve as dual “magic weapons” for attracting investment and retaining talent. Jiangsu’s efforts to cultivate a “hometown for German enterprises” exemplify the region’s commitment to economic transformation, business environment optimization, and open international engagement. Its expansive consumer market, advanced supply chain, and growing innovation capacity consistently draw multinational enterprises to China. Rudolph Hausladen, CEO of the Berman Group—the 500th German company to settle in Taicang—identifies abundant growth opportunities in the Chinese market. The Berman Group anticipates significant development in Taicang and China, aiming to double its business volume in the next decade.
“China’s progressive high-level opening to the outside world has created immense opportunities for multinational enterprises deeply engaged within the country,” observes Xiao Jiale, Managing Director of Adidas Greater China. With over two decades of market presence, Adidas has witnessed the continuous improvement of China’s business environment and industrial upgrading. China stands as one of the world’s largest consumer markets and a strategic priority for multinationals like Adidas. It also leads globally as the most digital consumer market, particularly in digital retail and supply chain innovation.

The Affinity for China Amidst “Decoupling” Rhetoric

Despite Western politicians’ calls to emphasize short-term economic fluctuations in China, propagate narratives of an “economic summit,” and advocate for “decoupling” from China, there is a stark contrast between this rhetoric and the actual experiences and intentions of multinational corporations operating in China. Data and real-world examples demonstrate that German enterprises are actively engaging with the Chinese market. The German Chamber of Commerce in China’s 2023/24 business confidence survey report, released in January, reveals that over 90% of surveyed German enterprises intend to maintain their presence in the Chinese market with no plans to withdraw. More than half of these companies plan to increase their investments in China within the next two years.
Experts from the German Federal Bank have also noted that numerous German industrial enterprises have achieved high sales and profits through Chinese production, and exports to China have become a vital profit channel. Nearly half of German manufacturing enterprises source key intermediate products from China, either directly or indirectly. Analysts note that China’s economy is not only integrating into the global landscape but also undergoing a comprehensive upgrade, shifting from a “quantity advantage” to a “quality advantage.” This presents both challenges and opportunities for foreign enterprises, with multinationals increasingly choosing China as their base. The concept of “decoupling and breaking the chain” is widely regarded as unfeasible.
China’s complete industrial system, vast market size, and the solid foundation of its manufacturing industry are key advantages. More than 90% of the 12,000 innovative “little giant” enterprises are suppliers to renowned domestic and international companies, reinforcing China’s competitive edge. German enterprise leaders often describe the China market as a “gymnasium” where multinationals compete and develop, spurring rapid growth for local businesses while also prompting foreign enterprises to accelerate transformation and localization. An increasing number of German enterprises are establishing their R&D headquarters in China to achieve localized development.
“Adidas in China is leveraging digital technology to forge new opportunities for product development and supply chain efficiency, crystallizing the China experience in marketing innovation,” says Xiao Jiale. He highlights China’s leading position in fabric R&D, production processes, and the efficient coordination of the entire industrial chain. “We hope that our practices in supply chain, digital retail, and logistics will serve as a model for adidas’ global development.” “Decoupling and breaking the chain are nonsensical; no country is immune,” asserts Lister, emphasizing that globalization is an ongoing process.
By Liu Yilin

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