german business in china

Business Confidence Survey 2014

German Business in China – Press Conference

Lothar Herrmann | 19.06.2014

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

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

Shanghai42.0%

Other East12.5%

Beijing20.9%

Other North7.7%

Pearl River Delta17.0%

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

19.06.2014

• 55% of local operations have under 250 employees• 66% with turnover under RMB 250 Million• SMEs dominate German business in China


17%

26%

23%

10% 11%13%

0%

5%

10%

15%

20%

25%

30%

35%

40%

<5 Million 5-50Million

51-250Million

251-500Million

501-999Million

>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

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


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

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

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

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 / noimpact

positive

very positive

Impact of government policies Impact on future investment

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

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


-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

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%


Increasing70%

Unchanged23%

Decreasing1%

Not a competitor

6%

Origin of competition Development of competition

19.06.2014

• Competitive pressure from Chinese innovation has limited impact• For vast majority IPR confrontation initiated by local companies has no effect


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

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

Significantlyworsening

Worsening

Neutral/unchanged

Improving

Significantlyimproving

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

19.06.2014


• 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

Exceed23%

Achieve36%

Mostly achieve

23%

Partly achieve

14%

Not achieve4%

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

19.06.2014


• 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%

19.06.2014


• 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

19.06.2014

• Majority plan to expand employment levels, but new employment is cooling• Investment plans remain stable, but majority holding investment constant


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

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


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

19.06.2014

Shanghai14.2%

Beijing11.3%

Chengdu8.3%

Guangzhou8.6%

Shenzhen6.2%

Shenyang2.7%

Chongqing6.8%

Nanjing2.7%

Suzhou3.9%

Tianjin3.8%

• 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

Wuhan5.1%


Top 10 locations companies plan to invest within the next 3 years

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 determinedEconomic reforms

•HR issues remain top 3 challenge, but decreasing

•Slow internet and IPR issues increasing

•To be watched: labor disputesChallenges