The German business community is optimistic about operations in China, despite the obstacles, according to a recent survey.
The survey was conducted by German Industry and Commerce (GIC) China and Euro Asia Consulting PartG, which focuses on China and other Asian growth markets.
It questioned 273 businesses, including wholly owned German companies, Sino-German joint ventures and German firms with representative offices in China.
Topics included the characteristics of German operations, investment motives, operational models, market potential and barriers.
About 200 new German-backed operations are set up in China every year. The survey found most German companies are optimistic about the Chinese economy.
The vast majority, or 80 percent, of respondents said they had achieved or exceeded targets. Production, trade and service firms tend to break even within an average of four years, according to the survey.
There are few complaints about sales momentum in China, with 86 percent of the German companies surveyed saying they were satisfied or very satisfied with sales. Many said their businesses were focused locally rather than export-oriented.
Low operating costs and sourcing are still favorable to foreign-backed firms, according to the survey, despite price rises in some areas.
The manufacturing industry still dominates German operations based in China, but trade and service are developing very quickly.
German small- and medium-sized enterprises (SMEs) are increasingly seeing China as a good option, the survey said.
Of the German operations with more than 10 years of market presence in China, 12 percent are backed by SME parent companies. But 57 percent of German firms in China for four years or less are backed by SMEs. Most German SMEs follow their key customers to China, the survey said.
The expansion of the tertiary industry and the boom of SMEs are expected to add diversity and vitality to the market.
German firms prefer to set up wholly owned operations in China rather than joint ventures because of their strategic advantages - such as direct control over Chinese subsidiaries, the survey said.
Of the wholly owned German companies in the survey, 86 percent said they wouldn't change their approach to the Chinese market. But only 24 percent of the joint ventures said they would repeat their business strategy, while 44 percent would maybe choose a joint venture again.
Representative offices are no longer as useful to German firms operating in China, with only 27 percent of respondents wanting to open them, due to their limited functions. In 2002, that figure was 50 percent.
"As China has eliminated market entry barriers and upgraded its economic structure, the German business community has become an integrated and indispensable part of the Chinese economy," said Richard Hausmann, chairman of the German Chamber of Commerce in China.
He said GIC applauds efforts to liberalize legal restrictions to allow foreign companies more freedom to choose the most suitable operating model.
Recruiting and retaining qualified employees is also a difficulty for German firms in China, with 27 percent of respondents saying it was a major obstacle and 47 percent considering it a problem.
Non-tariff trade barriers have improved, the survey said. But 41 percent of respondents said they still have problems in this area, especially in terms of time and capital needed for licenses in China.
"German operations in general are cautiously optimistic for all areas of existing barriers to doing business in China," said Hausmann.
Most survey respondents are positive about market potential in China, and nearly all plan to expand business activities here.
The survey also acknowledged the contribution of German companies to China's economic and technological progress since the late 1970s.
The report urged policymakers to improve the investment environment, reform the legal system and strengthen IPR protection. It also called for better education and vocational training.
(China Daily January 30, 2008)