After a boom period, German companies in China are downbeat. The double-digit growth rates that many industries were starting to take for granted have come to a swift halt. Managers complain that they are being held back from expanding in the country by tight regulations in some sectors. At the same time, they are keeping a close eye on how the Chinese are snapping up companies in Europe.
It comes as no surprise that ahead of Chancellor Angela Merkel’s tip to China on Sunday she has turned up the volume on calls for a free market and long promised Chinese reforms.
But her trip is overshadowed by the fact that the German government has wasted a good chance to brighten the outlook for German companies in China, through its abrupt rejection of the Chinese takeover bid for robot maker Kuka.
European companies have good reason to grumble about Chinese restrictions and the disparity in market access. On the one hand, Europe is more popular than ever among Chinese investors. Last year, Chinese direct investments in Germany rose to €14 billion ($16 billion), a 44 percent increase over 2014. The expansion is gathering speed this year, especially in the form of takeovers. Machine builder Krauss-Maffei, Hahn Airport and possibly even Kuka are just a few examples.
On the other hand, European investments in China declined by 9 percent in the same period, to €9.3 billion. While Chinese companies can invest without restriction in almost all industries in Europe, European companies are still excluded from many sectors in China.
In the run-up to her China trip, the German chancellor has seen her position slip from one of strength to one of weakness.
The purchase of a regional airport by a foreign company in China would be hard to imagine. IT and pharmaceutical companies complain that they were deleted from government procurement lists in some Chinese regions. The European Union Chamber of Commerce in Beijing recently surveyed more than 1,600 members and found that frustrations over discrimination and the slow pace of reform were running high.
The unpredictable market environment is stressful for many companies. A new national security law excludes companies from working in matters relevant to Chinese security, but it is unclear what sectors are actually included. The E.U. Chamber cites one case in which a U.S. company was preventing from investing in a hog farm. The reason, apparently, was that the meat from the hogs would eventually end up on the plates of soldiers in a canteen of the Peoples’ Liberation Army.
Foreign media firms are also under threat in China, where a new law can forbid them from publishing. In addition to news, the law also applies to comics and computer games. But it is still unclear how the law will be put into practice.
All of this would be reason enough for the German chancellor to push for more market access when she meets with the Chinese leadership. Europe is open, but China isn’t yet. It would be a strong message, if it weren’t for the Kuka case.
The high-tech company is seen as a showcase business in the world of Industrie 4.0, or digitalization of industry, in Germany. When Chinese air conditioner and household device manufacturer Midea submitted a takeover bid for Kuka, politicians in Berlin and Brussels were appalled, arguing that there was no way that European advanced technology could not fall into Chinese hands.
By now, the damage has been done. The comments offended officials in Beijing and the Chinese chamber of commerce in Germany has warned of “protectionist tendencies.” Now the Chinese are debating whether Germany is suddenly no longer open to Chinese investment, even when it comes from globally respected private companies like Midea.
In Beijing, Ms. Merkel will have to explain how this could have happened. She will have to underscore that Germany would welcome further investment from China. In the run-up to her China trip, the German chancellor has seen her position slip from one of strength to one of weakness.
German and European companies still urgently need China. Despite all concerns, there aresigns that the People’s Republic will remain a growth market for a long time to come. To benefit from this, European companies should be able to access the Chinese market, something that European politicians must push for. But they can only act with confidence if they themselves are not being protectionist. Viewed in this light, the Kuka case should serve as a lesson.
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