Plentiful opportunities for growth keep nation firmly in German companies' sights

Modern infrastructure, huge market and positive long-term financial outlook the key attractions to corporations

China will remain a key market for German companies as its economic resilience and large domestic market are vital for them to stay competitive globally, said experts and business executives.

Foreign direct investment in the Chinese mainland expanded 16.4 percent year-on-year to 892.74 billion yuan ($125.67 billion) in the first eight months of this year. Meanwhile, investment from Germany climbed 30.3 percent, statistics from the Ministry of Commerce showed.

Two-way investment between China and Germany has exceeded $55 billion to date. Such close economic ties between the two countries are a result of the development of globalization and the laws of the market, said Shu Jueting, a spokeswoman for the Ministry of Commerce.

She said that the complementary advantages of the two economies are beneficial to businesses and consumers.

China will unswervingly promote high-level opening-up, continuously foster a market-oriented, legalized and internationalized business environment, and create better conditions for expanding trade cooperation with countries including Germany, Shu added.

Even though there have been some investment outflows to Southeast Asia due to lower labor costs, the leaders of German companies have said that this does not conflict with their investment plans in China, which are more about collaboration in high-tech and service industries and are in line with China's high-quality growth strategy.

"China is the biggest chemical market in the world and is projected to account for 50 percent of the world's chemical market share by 2030. Therefore, we see great potential for further growth," said Jeffrey Lou, president and chairman of BASF's China unit.

BASF put the first batch of plants of its Verbund site into operation in Zhanjiang, South China's Guangdong province, in September.

The site, with a total investment of 10 billion euros ($9.72 billion), will be the largest single investment by a German company in China.

The new plant will produce 60,000 metric tons of engineering plastic compounds per year for customers in China.

This is to bring BASF's total annual capacity of engineering plastics in the Asia-Pacific region to 420,000 tons by 2023.

It will enable BASF to meet growing demand from customers, particularly in the automotive and electronics industries.

"Our investments in China have a strong focus on innovation and sustainability. One example is the innovation campus Shanghai, our largest R&D hub in the Asia Pacific. Its third phase expansion will be inaugurated in early 2023 to serve local customers' growing needs for innovative products," said Lou.

In addition to the expansion of a jointly operated Verbund site — with State-owned China Petrochemical Corp, in Nanjing, Jiangsu province, in April — he said that BASF will continue to invest in the integrated battery materials supply chain in both Chinese and global markets to strengthen earnings.

Apart from implementing a new negative list for foreign investment to broaden market access, China scrapped, revised or enacted 520 regulations to improve the legal environment for foreign investment.

The government has also ramped up efforts to ensure the legitimate rights and interests of foreign businesses.

The State Council officially revealed a package of 33 measures in May. Many of the policies are proposed to accelerate the delivery of key foreign investment projects and attract foreign investment.

The country will support foreign investors to establish research and development centers in high-end and emerging technologies, expand enterprises' cross-border financial channels, enhance related government branches' communication with foreign chambers and enterprises, and assist foreign businesses more proactively, according to the Ministry of Commerce.

The Chinese market is increasingly demonstrating features of its own in consumption patterns, domestic technology and business model evolution.

It is becoming more different from other markets and calls for business model localization, said Denis Depoux, global managing director of Munich-headquartered consultancy Roland Berger.

The engagement and business models of multinational companies need to evolve so as to better participate in China's future development, he said.

Vivian Zhang, general manager for China of Merck Healthcare, a business sector of Germany's Merck Group, said there are still many unmet medical needs in China.

As a result, the company's healthcare business is focusing on two strategic priorities in particular — in-market portfolio and innovation — to strengthen its business in China.

"When it comes to our in-market portfolio, we are looking to maximize the potential of our existing mature products, as well as enhance their life cycle management. In China's evolving and increasingly dynamic healthcare ecosystem meanwhile, innovation is proving key to driving superior patient outcomes," she said.

Besides looking to extend its partnerships in China, Merck plans to embrace digital transformation to better serve patients in mature and lower-tier markets.

"This year marks 50 years since the establishment of Sino-German diplomatic relations. We look forward to both countries deepening cooperation in fields ranging from healthcare to sustainable development," said Zhang.

Echoing this sentiment, Bettina Schoen-Behanzin, regional representative for Asia of Freudenberg Group, said investment in both high-tech manufacturing infrastructure and local R&D facilities has become a part of the company's long-term approach and innovation strategy in China.

The German conglomerate commissioned the world's largest filter production facility in Foshan, Guangdong province, in 2021. It will open another factory in southwestern China's Chongqing in 2023 to meet growing demand in the local market.

"The rapid development of the Chinese market is visible to the entire world. The rapidly expanding economy opens up a variety of market opportunities," she said. "Only by establishing a local production network, nurturing local talent and strengthening local R&D capabilities will we be able to meet the needs of local customers more efficiently."

China's advantages — including a complete industrial system, lucrative market, social stability, and positive long-term economic fundamentals, as well as the China-Europe freight train services — have created a solid foundation for the growth of German companies, said Sang Baichuan, dean of the Institute of International Economy at the University of International Business and Economics in Beijing.

"In the context of market demand, supply chain stability, global companies' footprint, growth in China and a future development strategy, it is vital for China and Germany to enhance business ties to mitigate the risks caused by economic uncertainties in the world," he said.