MNI INTERVIEW: Chinese Demand Boosting German H2 Optimism

Beijing’s reliance on German-made equipment will lower trade friction with Berlin, a leading trade delegate has told MNI, noting China’s improved H2 economic outlook had driven increased optimism among member firms.

Maximilian Butek, chief representative of the Delegation of German Industry and Commerce in Shanghai (AHK), told MNI Chinese exporters had increased orders for German-made machinery and automotive manufacturing equipment.

Butek noted AHK’s recently published China confidence survey showed 16% of German firms expected economic decline in the short term, an improvement from January’s 83%, with firms operating in the Yangtze river delta area doing well. German machinery and automotive sector suppliers represent about 50% of AHK’s membership.

“The service sector remains a challenge, but overall last year’s peak pessimism has bottomed out,” Butek continued.

While revenue outlook surged, members said pricing pressure remained the top concern due to weak domestic demand and intense competition, he added, stressing concerns over IP protection and fair treatment persisted.

AHKs survey showed 75% of members experienced overcapacity within their industry.

The organisation's findings differ from the European Chamber of Commerce in China's recent survey, which noted a decline in sentiment. (See MNI INTERVIEW: Euro Firms Face Slow China Market - Chamber) MNI reported recently China’s export growth will remain strong in H2 driven by competitive advantages (See MNI: China Exports Strong In H2, Despite Diverging PMIs)

EU-CHINA RELATIONS

Butek doubted Beijing would implement retaliatory trade action targeting German firms, despite China opening anti-dumping investigations into EU spirits and agriculture in response to Brussels’ tariffs on Chinese electric vehicles.

“China remains reliant on German equipment and technology, this reduces the risk of trade frictions with Berlin,” he stressed.

The EU action on Chinese EVs will boost Korean and Japanese firms’ market share rather than increase the competitiveness of EU manufacturers, he added.

“If the EU wants to improve competitiveness, then we need reforms on tax, less bureaucracy and better skills training – protectionist measures are not effective,” Butek commented.

China still hopes to negotiate a deal with the EU to reduce or drop hefty new tariffs on Chinese electric vehicles, policy advisors told MNI.

STRONG FDI

German FDI to China hit a record EUR11.9 billion in 2023.

Butek predicted a similar level in 2024 driven by production localisation and a fast-growing industrial sector central to the government’s high-quality growth strategy. “FDI will remain high but drop off eventually as localisation matures and no new entrants arrive,” Butek said.

Members in machinery and automotive were not suited to capex light, or leasing business models, a trend other chambers said had contributed to declining FDI levels, he argued.