Exports at Risk
BERLIN/BEIJING (Own report) - German business circles are observing an appreciable regression in German exports to Asia with apprehension. Exports to that continent had been booming for years, recently nurturing hopes that German export profits could be stabilized, in spite of the slump in sales to crisis-ridden Euro zone countries. Now, these exports have clearly slumped during the first semester of 2013 and made only a moderate comeback since. This is also true for Germany's main Asian trading partner - China. Specialists are pointing out that the slump in exports to China is related to a reorientation of the People's Republic's economic policy and that a new export boom, comparable to the past few years, can no longer be expected. It is, however, expected that China will upgrade its industry to higher technological standards, thereby becoming Germany's rival - even in sectors that had been particularly important for the German economy, for example the automotive industry. Experts are demanding that the German government undertake precautionary measures.
Appreciable Regression
German business circles are observing the development of foreign trade with Asia with apprehension. In the first semester of 2013, the volume of German-Asian trade appreciably regressed for the first time - if one excludes the financial crisis years 2008 - 2009 - particularly affecting German exports of great significance for the profits of the former export world champion. A slump in foreign trade with China, which now accounts for more than 45 percent of the total German trade with the Asian-Pacific region,[1] is responsible for this regression. Imports from the People's Republic of China receded by 5.6 percent to 35.4 billion Euros during the first semester 2013; exports to China diminished by 5.9 percent to about 33 billion Euros, in the same period.[2] Although experts announce a tangible trade revival, it seems at least uncertain whether this trade with China will continue to grow as strongly as it had done until now.
Reorientation in China
This mutation can be traced to a reorientation of China's economic policy. With its growth "at an annual average of around ten percent," the People's Republic of China is "making a significant contribution to the global economy," according to a recent analysis of the German Institute for Economic Research (DIW).[3] Its boom has been the result of a breathtaking rise in exports. However, this could not be indefinitely maintained. Already back during the financial crisis, China suffered slumps - a regression of about ten percent in its exports, due to the crisis-ridden countries of the West having to reduce their purchasing. China was able to compensate for these slumps with gigantic economic stimulus programs. They could not be perpetually sustained; therefore, Beijing seeks now to maintain its growth by developing its domestic consumption. This is accompanied by a multitude of social and economic policy measures. The government plans stronger urbanization, because cities tend to consume more than rural areas; better social safeguards are also needed, if for no other than economic reasons - to stimulate consumption willingness. The impending domestic transformations are enormous, and it must be seen how successful they will be.
New Industries
However, according to the DIW, they will also be accompanied by foreign trade transformations as well. China's changeover from an export to a consumption orientated economy could possibly "impinge also on Germany's exportation economy, specialized in capital goods." Beijing has already "indicated that it would tolerate a lower GDP growth rate in the future." There is talk of an annual growth rate of 7.5, rather than ten percent,[4] which could also mute the enormously booming German exports to China. This is ultimately further aggravated by "a decreasing import demand," as soon as the People's Republic of China is a position to produce certain commodities, "on a larger scale inside the country - particularly autos and machines." In the long run, China could even export commodities, it had previously been importing. This was recently demonstrated by the dispute over Chinese photovoltaic panels. The European and North American producers - including those in Germany - were unable to withstand the pricing pressure on the market that these exports from China had provoked.[5] In fact, Chinese production success in the Solar industry has hit the German competition hard. (german-foreign-policy.com reported.[6])
China's Automotive Industry
To illustrate the problem, the DIW uses the example of the automotive industry. Car sales in China are booming tremendously - also to the benefit of German producers. Since 2005, they had been able to increase sevenfold their sales to the People's Republic of China. The Chinese government, however, is pushing for the development of domestic production. German companies - particularly VW, but also BMW and Daimler-Benz - are "increasing their production capacities in China," according to the DIW analysis. From "the Chinese perspective" one should expect that "auto imports from Germany will be substituted by production sites in China." Sooner or later, "German foreign trade statistics will notice this." A future "export offensive from China" should even be expected. For example, the Shanghai Automotive Industry Corporation (SAIC), currently the largest Chinese producer of autos, auto spare parts and motorcycles is planning to increase its export by at least 130 percent annually. Other auto producers have similar plans. For now export is envisaged for Asian markets. This is, of course, also attractive to German companies with production sites in China. However, in the long run, the DIW expects an "export offensive from China to the European market."[7] The German government will have to "seriously deal with this development and its consequences."
Billions in Investments
Chinese companies have also become strong enough to use the methods of international competition, such as the acquisition of state-of-the-art technology through the purchase of foreign firms. For the next five years, China is planning direct investments abroad at a volume of 500 billion US Dollars. Takeovers are also expected in Germany. According to a recent study by the Munich Innovation Group and the Munich Technical University's Chair for "Strategy and Organization," experience has shown that with the purchase of firms in Germany, Chinese enterprises are usually also seeking to "establish a strategic bridgehead in Europe." Takeovers of German firms offer a "real opportunity to rescue jobs and production capacities in Germany with the strong financial backing by Chinese investors," while keeping the strategically relevant research and development in the country and "developing the Asian market for its own purpose." Such cooperation with Chinese enterprises certainly bears potential.[8]
Uncertain Future
From the perspective of German industry, however, it is uncertain if the profits from exports to China will remain at their previous level. Concern over the economic decline in the Euro zone has dampened this hope. The hope is dwindling.
[1] Die Region umfasst die Länder Süd-, Südost- und Ostasiens sowie Australien und Neuseeland.
[2] Deutscher Außenhandel mit Asien-Pazifik; www.oav.de
[3], [4] Christian Dreger, Yanqun Zhang: Perspektiven eines konsumgesteuerten Wachstums in China, DIW Wochenbericht 41/2013, 09.10.2013
[5] Georg Erber: Deutsch-chinesische Wirtschaftsbeziehungen: Chancen und Risiken für Deutschland, DIW Wochenbericht 41/2013, 09.10.2013
[6] see also Abstiegskämpfe
[7] Georg Erber: Deutsch-chinesische Wirtschaftsbeziehungen: Chancen und Risiken für Deutschland, DIW Wochenbericht 41/2013, 09.10.2013
[8] China investiert - Studienresultate; www.china-investiert.de
