With China long established as the world’s factory, the United States has led a push to divert manufacturing and supply chains away from the world’s second-largest economy. While a growing number of multinationals de-risk from China amid its changing economic landscape and persistent geological tensions with the West, some German companies prefer the “In China for China” strategy. German industrial motion firm SEW-Eurodrive is implementing a new investment plan, starting construction in February on its third manufacturing base in the country, in Guangdong. “We are full of confidence in the prospects of our China business, as always,” said Zhao Gang, General Manager of the German firm’s Suzhou operations.
The family-run multinational is among a number of European firms – particularly advanced German manufacturers – that remain committed to China. The country’s huge market size, coupled with a charm offensive, has persuaded them to stay and increase their investment, and adopting an “In China for China” strategy to cope with fiercer competition from local companies and in the face of rising global supply-chain risks. Zhao spoke highly of China’s investment environment and said local governments were “very supportive” of foreign businesses, while growth potential in the massive market was a big reason behind his company’s optimism. The firm has seven other assembly factories in the Asia-Pacific region, including in Japan, South Korea and Australia, but combined sales in those countries accounted for less than 20% of what is generated by its China operations. Joining SEW’s expanding China presence is German lens maker Zeiss, a global front runner in optics and optoelectronics. The multinational launched a new manufacturing base in Suzhou on July 8 – its third China operation after Shanghai and Guangzhou. This marks Zeiss’ further deepening of localization in China and upgrading of capabilities in local research and development (R&D) and manufacturing.
Last year, German businesses’ direct investment in China increased by 4.3% to a record-high €11.9 billion despite their government’s calls to reduce exposure in the country. The total investment in China by German firms in the last three years was equivalent to that in the previous six years, the German Economic Institute (IW) said. This is against the backdrop of waning enthusiasm among European companies in recent years as they tried to strike a balance between de-risking from China and cooperating with it. EU investments as a proportion of China’s overall foreign direct investment (FDI) fell from 7.5% in 2018 to 5.3% in 2022, according to China's Ministry of Commerce (MOFCOM). Price pressure due to intense competition amid a rise of local companies is a concern most widely shared by German firms in China, according to a business confidence survey released last month by the German Chamber of Commerce in China.
SEW’s Zhao said that his company “has brought the most advanced technology and products to China” and would continue to win the Chinese market with that. The company’s sales to third-party purchasers in China exceeded CNY10 billion in 2021 and saw “steady growth” in the years since, he added. According to the AHK survey, a slim majority of the companies operating in China – about 53% – planned to increase their investment in the coming two years, though this marked a drop from 61% when asked the same question last year.
That included Phoenix Contact China – another Germany-headquartered global leader in the industrial automation sector. The firm is scheduled to start building a new logistics center in Nanjing, Jiangsu province, in the first half of next year to mainly serve its local clients, according to Vice President Jiang Shimin. Purchasing and manufacturing locally to serve the local market has become an important strategy for the company, he said. “We’ve been increasing our purchases from local suppliers, and that proportion has been rising each year,” he said.
The Chinese government’s efforts in attracting foreign investment since China’s borders reopened in early 2023, including widening market access and loosening visa policies, have also paid off to some extent, according to Benoit Ikhelif, Deputy General Manager of Danish logistics company DSV’s China operations in Nanjing. Though the three pandemic years were “not easy”, “we’re still here and still focus on China”, he said. The company has “very good communication with authorities here. They are very flexible, and they came to Sweden” after the pandemic, he noted. Wooing back foreign investors has been a major economic theme for Beijing in the past year as it strives to keep gross domestic production (GDP) growth at around 5% amid weak investor and consumer confidence. Emphasizing its openness to foreign companies, the Chinese government has pledged to ensure 100% access to the manufacturing sector and to remove more restrictions in the service sector, the South China Morning Post reports.
China attracted CNY498.9 billion worth of FDI in the first half of this year, down more than 29% from the same period in 2023. However, over the same period, the number of newly registered foreign companies saw a 14% rise from a year earlier.
