Rising labor costs, changes in regulation pose challenges
German companies in China viewed "2016 as one of the most economically difficult of recent years" due to rising labor costs and a shortage of talent, according to a survey released on Tuesday, which urges more liberalization in the market.
Based on a survey conducted by the German Chamber of Commerce in China, German firms in the country evaluate their financial performances more cautiously than before. In addition, a third of the 426 respondents feel less welcome in China than before and their intentions to invest in new locations within the country have reached a three-year low.
China's progress in opening up its market has been slowing down and an increasing number of German companies have been reporting difficulties in running businesses in the country, German Ambassador to China Michael Clauss told a press briefing in Beijing on Tuesday.
"High investment barriers remain for foreign companies," he said, noting that establishing joint ventures with Chinese partners is a must and that protectionism has been rising, like other places around the world.
From January to September, Chinese companies' mergers and acquisitions (M&As) volume in the EU reached 11 billion euros, but the EU's M&As in China only hit 500 million euros during the same period, Clauss noted. "There is certainly a gap," he said.
However, 89 percent of the German companies surveyed said they have no plans to leave China within a year, and that the market continues to have high significance for them.
German companies are not the only ones facing rising labor costs, so do many Chinese companies, said Wang Jun, deputy director of the Department of Information at the China Center for International Economic Exchanges.
"As some local governments have raised the minimum wage, enterprises in labor-intensive industries were likely to be the first ones affected," he told the Global Times on Tuesday.
Meanwhile, major first-tier cities including Beijing, Shanghai and Shenzhen have seen rapid growth in real estate prices, which also boosted workers' wages, he noted.
Nearly 30 percent of German firms surveyed are in the machinery and industrial equipment sector, and 18 percent are in the automotive industry, the survey noted. There is high share of small and medium enterprises (SMEs), many of which have had a long presence in China.
Machinery firms were least optimistic about the business outlook for 2017, as one in three companies reported deteriorating development in 2016.
Finding qualified staff remains the most pressing challenge, according to the respondents.
As China carries out its 10-year Made in China 2025 plan, foreign firms and their Chinese counterparts are striving to recruit talent to work in fields such as industrial robotics and smart logistics.
The lack of qualified workers is one of the major challenges many Chinese factories are facing today, Qu Daokui, president of Shenyang SIASUN Robot & Automation Co, told the Global Times on October 21.
"More and more factories are asking us to teach them how to use industrial robots, instead of just installing them, which illustrates how important it is to educate more skillful workers," he said, noting that at the beginning of the year the company hired a German expert to help train more skillful workers.
Foreign investment changes
The negative list approach is set to improve the management of foreign investment in China, but the business environment will not go back to the status in 1990s when local governments could attract a lot of foreign capital to boost local economies without evaluating costs, Chen Fengying, a research fellow at the China Institutes of Contemporary International Relations, told the Global Times on Tuesday.
"Foreign companies will not enjoy superior treatment in China anymore, that's for sure," she said, noting that as the global economy has been recovering slowly, business outlook has dimmed, which has also affected foreign investment in the country.
As China pushed forward supply-side reform, it is time for foreign firms to tap into new opportunities in sectors such as services, Chen noted.