—_ GERMAN FDI IN CHINA china was the third largest ecipient of FDI amounted to €28 billion, whil wed the highest growth figure was slightly lower, €27 ‘gap widened ‘aces sion to the World Trade Organization (WTO) in early 2002 marked the start of 13 process to dismantle trade barriers | ‘and significantly improve access. Chinese market. The openit FI in China, ‘rade relations between Germany and tions but azo to German foreign direct investment into China. German investment in China = stylised facts shina’s most important partner and ranks ‘op investors from Europe. ‘Up to 2003, German companies had invested an estimated €7.9 billion in China. Although this constitutes a ‘tenfold increase from 1995's igure of -€200 million, German investments in CChina account for only 1.2 per cent of total German FDI... In Asia, the focus ‘of German investors rests no longer just fon Japan but increasingly also on China Most investors are from ‘manufacturing industry Phlippines Figure 7.1 German-Asian trade ‘were leading enterprises ike Siemens, ————————E—————— SS 1 Figure 7.2 Origin of German investment (2002) Figure 7.3 Destinations of German 2Bayer and Volkswagen, some of which | tock back on over 100 years of doing (see Figure 7.2). jerman investors and China's ‘as the world’s ‘assembly ine’ it can hardly come as a surprise that over 80 per cent of all investment in China went to the manufacturing ‘sector, especially the automotive, steel land chemical industries (see Figure 7.3)... Many investments go towards es into wholly probably the larges China, followed by Siemens. Source! Deutsche Bak (2008) - Following on from our previous case study, there are certain characteristics of the Chinese market that seem to appeal to GGerman companies Market potential ‘There were an estimated 76 million pros- pperous consumers in China in 2001 have to spend the ss on food and larger than Low-cost ‘assembly line’ ‘hs a second, equally important argument ‘companies cite the use of China as an ‘extended low-cost assembly line’. Without cost pressures are a driving factor investment in China, New opportunities arising from WTO. membership Lack of information and planning certainty ‘The main impediments that argue against involvement in China are persistent legal ina lack MOTIVES AND PROSPECTS FOR GERMAN FDI IN CHINA Of intellectual property rights protection but also in quickly changing framework conditions and regulatory obstacles. ‘Another problem is limited market trans- parency. There is insufficient data on ‘customer structures and preferences. as well as potential supplier networks. Moreover, the problem of defining individ ual market segments and the sheer size of ‘the country are making the search for rele- ‘vant market information even more diff- cult, By no means can China be considered ‘to be ‘one country — one market’ China is about as large as both western and east- fern Europe together, and in many respects itis just as diverse as the various countries of Europe. A balanced investment strategy should therefore be designed to either service different regions or concentrate on a smaller and relatively homogeneous main market. High input prices Demand for electricity ose by 15 per cent in 2003, while capacity increased by only 8 per cent. This led to a shortage of ‘approx. 40 gigawatts (roughly equivalent ‘Austra Fierce competition the increasing attractiveness Chinese market, competition Many competitors have been active in China longer than the German firms, as EU companies have so far lagged behind their ‘Asian peers and behind the dollar blockShanghai office # Commerce, SD! € billion 19201985 199019952000. 2002 Sources: Chinese Embassy in Ge Fewer large-scale investment projects ial companies such in the DAX30 or Fortune 500 have made considerable J. which results from over- ‘3 more even sequencing of flows could benefit China by only be prepared to expand further wien the current investments have 5, proved profitable; n most cases profits from investment flows will gradually shift from foreign to domestic investment, Additional projects will have to be self-financing. Further economic development could then ‘mean a trend away from greenfild invest- ment toward M&A investment: that is, ‘mergers with local firms. Source: Deutsche Bank 2004) |) Questions: 1 What seems to motivate German motives fallin ? the Asian tigers, obstacles. to doing quite wel German investment in China?