Business Confidence Survey 2014 German Business in China – Press Conference Lothar Herrmann | 19.06.2014
Business Confidence Survey 2014
German Business in China – Press Conference
Lothar Herrmann | 19.06.2014
Page 2 19.06.2014
Content
German company profiles
Market importance
Market environment
Business challenges
Business outlook 2014
Conclusion
Q & A
1
2
3
4
5
6
7
Page 3 19.06.2014
1. German company profiles
• Survey conducted from May 12th to June 6th 2014• Response rate 17.4% or 417 companies • Regional and industrial distribution of companies remains stable
Geographic distribution Industry segments
Shanghai42.0%
Other East12.5%
Beijing20.9%
Other North7.7%
Pearl River Delta17.0%
7%
1%
1%
2%
3%
3%
3%
3%
4%
5%
5%
6%
6%
9%
14%
26%
Other
Tourism
Aerospace
Environmental Products/Services
Medical Supplies
Logistics
IT/Telecommunications
Consumer Goods
Construction
Finance/Insurance
Plastic/Metal Products
Electronics
Chemicals
Consulting/Legal Services
Automotive
Machinery/Industrial Equipment
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• 55% of local operations have under 250 employees• 66% with turnover under RMB 250 Million• SMEs dominate German business in China
1. German company profiles
17%
26%
23%
10% 11%13%
0%
5%
10%
15%
20%
25%
30%
35%
40%
<5 Million 5-50Million
51-250Million
251-500Million
501-999Million
>1 Billion
Number of employees Annual turnover in RMB
36%
29%
23%
5%7%
0%
5%
10%
15%
20%
25%
30%
35%
40%
< 50 50-250 251-999 1000-2999 >3000
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• Legal structure is stabilizing, with 67% of companies registered as WFOEs• For the first time majority of companies have operated in China for over 10 years
1. German company profiles
67%
12%8% 8% 6%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Legal form Years in China
55%
5%
8% 7%
25%27%
28%
0%
5%
10%
15%
20%
25%
30%
< 2 2 - 4 5 - 6 7 - 9 10 - 15 > 15
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• Despite slower economic growth in China, importance of global business is increasing• China remains a key source for growth of global profit and turnover development
57%
50%
60%
51%
61%
56%
0%
10%
20%
30%
40%
50%
60%
70%
Turnover Profit
2012 2013 2014
2. Market importance
China as top market for German parent company in global business
Page 7 19.06.2014
• German companies operate in China for the Chinese market• Importance of exports to Europe continue to decline• Exports to other Asian markets are stable at low levels
2. Market importance
China is the most important market for local operations
64%
75%77%
29%
18% 17%
7% 7% 7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2012 2013 2014
Mainland China Europe Other Asia
Page 8 19.06.2014
• Central government initiated reforms widely seen as positive• Impact on future investment decisions is uncertain
5%
4%
7%
9%
11%
10%
15%
13%
18%
18%
22%
31%
34%
35%
39%
42%
39%
46%
48%
51%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Reducing industrial over capacities
Interest rate liberalization
RMB exchange rate liberalization
Reduction of red-tape
Increased urbanization
Improved rule of law
Anti-corruption drive
Increased role of markets
Improved environmental protection
Expanding domestic consumption
very positive impact positive impact
3. Market environment
4%
34%
49%
12%
2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
very negative
negative
neutral / noimpact
positive
very positive
Impact of government policies Impact on future investment
Page 9 19.06.2014
• HR topics remain the most prominent challenge, but major challenge for smaller share compared to previous years
• Slow internet most significant non-HR topic• Corruption with biggest fall, dropping from 5th position to 10th
49%
50%
54%
56%
58%
59%
59%
67%
74%
75%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
Corruption
Preferential treatment of local companies
Increasing commodity and energy prices
Domestic protectionism
Protection of intellectual property
Bureaucracy/administrative hurdles
Slow internet speed
Retaining qualified staff
Finding qualified staff
Increasing labour costs
2014 2013 2012
4. Business challenges
Top 10 business challenges
Page 10 19.06.2014
• HR issues decreasing from high level• Impact from industrial action remains low but increasing• Internet speed and domestic protectionism on the rise• IPR issues continues to become more significant
4. Business challenges
-5.8
-4.1
-1.9
9.6
8.9
6.4
5.8
-8 -6 -4 -2 0 2 4 6 8 10 12
Slow internet speed
Domestic protectionism
Industrial action/strikes
Protection of intellectual property
Biggest changes amongst challenges 2013-2014*
Retaining qualified staff
Finding qualified staff
Increasing labor costs
Increasing
Decreasing
*change in percentage points
Page 11 19.06.2014
• 94% of German companies report facing Chinese competition• 70% expect competitive pressure from Chinese companies to increase
94%88%
73%68%
60% 59%
51%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
4. Business challenges
Increasing70%
Unchanged23%
Decreasing1%
Not a competitor
6%
Origin of competition Development of competition
Page 12 19.06.2014
• Competitive pressure from Chinese innovation has limited impact• For vast majority IPR confrontation initiated by local companies has no effect
4. Business challenges
19%
33%
27%
4% 3% 3%
45% 43%50%
0%
10%
20%
30%
40%
50%
60%
2012 2013 2014
Increasing Decreasing No effect
8% 10%
2%9%
15%
73%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
2012 2013 2014
Expected competition in the next 3 years IPR confrontation
Page 13 19.06.2014
5. Business outlook 2014
• German companies perceive economic environment similar to 2013• Evaluation of economic conditions remains cautiously positive• Automotive sector most positive
8% 7% 9%
22%
41% 40%
43%
38% 34%
23%
13% 17%
4% 2% 1%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014
Significantlyworsening
Worsening
Neutral/unchanged
Improving
Significantlyimproving
75%
42%46%
4%
21%19%
0%
10%
20%
30%
40%
50%
60%
70%
80%
Automotive Machinery Other
Improving Worsening
Evaluation of economic environment ….by industry
Page 14 19.06.2014
5. Business outlook 2014
• General business sentiment remains positive for 2014• Higher share expect to exceed targets compared to previous years• Anticipated impact of slowdown for 2014 less severe
Exceed23%
Achieve36%
Mostly achieve
23%
Partly achieve
14%
Not achieve4%
12%
32%
14%
21%
23%
17%
0%
5%
10%
15%
20%
25%
30%
35%
Exceed Not or partly achieving
2012 2013 2014
Expectations on reaching business targets ….compared to previous years
Page 15 19.06.2014
5. Business outlook 2014
• German business on stable footing with growth moderation setting in• Higher share of companies expect increasing turnover• Similarly a higher share report increasing profits• Share of companies reporting growth >25% decreasing
Change in expected turnover Change in expected profit
21%16% 13%
14%17% 23%
30% 37%38%
21%21%
20%
15%9% 7%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014
Decrease
Similar
Increase (+4-14%)
Significant increase(+15-24%)
Increase >25%
12% 8% 10%
12%12%
14%
29% 35%36%
28%30%
28%
19% 16% 12%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2012 2013 2014
Decrease
Similar
Increase (+4-14%)
Significant increase(+15-24%)
Increase >25%
Page 16 19.06.2014
5. Business outlook 2014
• Revenue growth levels correlate to years companies have operated in China• Turnover growth moderation set in after 5th year for most companies• Rapid growth remains possible for newcomers• Higher base of established companies translate into slower growth rates
Share of companies with turnover growth >25% by years in China
38%39%
23%
13%
9%
4%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
< 2 2 - 4 5- 6 7 - 9 10 - 15 > 15
Page 17 19.06.2014
• Majority plan to expand employment levels, but new employment is cooling• Investment plans remain stable, but majority holding investment constant
5. Business outlook 2014
58%
61%
50%
33%
32%
40%
9% 8% 10%
0%
10%
20%
30%
40%
50%
60%
70%
2012 2013 2014
Increase Similar Decrease
Expected employment plans 2014 Expected investment plans 2014
44%
48% 48%45%
50%
44% 41%
47%
7% 8%11%
8%
0%
10%
20%
30%
40%
50%
60%
70%
2011 2012 2013 2014
Increase Similar Decrease
Page 18 19.06.2014
• Fewer companies plan to invest in new cities until 2017• Companies more risk averse with investment decisions• Following key customers and regional diversification main reasons companies plan new
investments in new cities
48%
35%
17%
30%
46%
24%
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
Yes No Maybe
2013 2014
5. Business outlook 2014
46%
21%
13% 11%
4% 4% 2%
64%
41%
26%
12%8% 8%
3%
0%
10%
20%
30%
40%
50%
60%
70%
2013
2014
Investment plans for new locations Motivation for investments
Page 19 19.06.2014
Shanghai14.2%
Beijing11.3%
Chengdu8.3%
Guangzhou8.6%
Shenzhen6.2%
Shenyang2.7%
Chongqing6.8%
Nanjing2.7%
Suzhou3.9%
Tianjin3.8%
• Yangtze Delta, Bohai Rim, Pearl River Delta most attractive for over 50%• Chengdu and Chongqing most likely to become next German business hub• Central and North East Region less attractive
Top 3
New in 2014
Wuhan5.1%
5. Business outlook 2014
Top 10 locations companies plan to invest within the next 3 years
Page 20 19.06.2014
6. Conclusion
• German companies performing robustly
• Business sentiment generally positiveBusiness outlook
• Turnover and profits growth at more moderate levels
• For the first time over 50% operate in China for over 10 years, operating from higher base level with lower growth
Moderation of growth
• Majority of companies perceive government reforms as positive
• Effect on future investments remains to be determinedEconomic reforms
•HR issues remain top 3 challenge, but decreasing
•Slow internet and IPR issues increasing
•To be watched: labor disputesChallenges