Reality Adjustment

Long a Source of Growth, China Losing Luster for German Firms

A woman rides her bicycle past a Mercedes Benz at a cross road in Beijing. Source:  AFP
A woman rides her bicycle past a Mercedes Benz at a cross road in Beijing.
  • Why it matters

    Why it matters

    While China remains important, tighter regulations and the loss of a technological advantage to Chinese rivals is adversely affecting German companies.

  • Facts

    Facts

    • Western companies are forced to accept local venture partners to enter the Chinese market.
    • Often, the partners eventually copy key technology and abandon their Western partners.
    • BMW, Daimler and VW this year will earn €84.6 billion ($111.7 billion) in China, or 70 percent of DAX company earnings there.
  • Audio

    Audio

  • Pdf

For years, companies alarmed by weak growth in Europe have placed their bets on China’s booming market. This shift to the Far East has long enabled many German businesses with a strong export focus to achieve impressive results.

But now, even the world’s largest growth market is increasingly the source of bad news.

First, Chinese antitrust officials forced German carmakers, businesses long spoiled by success, to lower prices on their replacement parts. Raids in several large joint German-Chinese plants and fines in the hundreds of millions of euros for illegal price fixing were a signal to carmakers that the golden days of unlimited growth are coming to an end.

And now, for the first time in more than a decade, the 30 largest publicly traded German companies in China are no longer seeing double-digit sales growth.

A number of companies on Germany’s benchmark DAX stock index have even reported declining revenues in China. For instance, Siemens and automaker Daimler did less business in China in 2013 than in the previous year.

Chemical producer BASF saw revenue decline by 17.9 percent, to €5.5 billion ($7.3 billion), in 2013, accounting for only 7.4 percent of its global revenue. Deutsche Post, specialty chemical maker Lanxess, industrial gas supplier Linde and pharmaceutical company E. Merck achieved only minimal sales growth.

On balance, German companies are experiencing sobering declines in business in China. The 30 DAX companies generated revenues of €120.8 billion in the last fiscal year.

According to calculations by Handelsblatt in cooperation with the EAC consulting firm, which specializes in emerging economies, this represented a 7 percent increase over 2012. It was the weakest growth figure in China, by far the most important emerging economy for large German corporations, since the 1990s.

Average growth in 2012 was 13.5 percent, and it was much higher in the preceding years.

It was only with exorbitant growth that German companies had repeatedly offset weaknesses in developed, industrialized countries over the last decade. But that key advantage over competitors from other European countries is now disappearing.

To make matters worse, there is no improvement in sight.

“Unfortunately, China’s role as an engine for growth was largely eliminated in the first few months of the year. China trade is stagnating,” said Anton Börner, president of the Federation of German Wholesale, Foreign Trade and Services or BGA, as it is known in Germany.

In a poll of 1,000 companies by the E.U. Chamber of Commerce, two thirds of respondents said the golden years in China are over.

Want to keep reading?

Subscribe now or log in to read our coverage of Europe’s leading economy.