Magali Menant has been with the Delegation of German Commerce and Industry (DGCI) in Shanghai since 2002. For the past three years, she and her team have been developing Econet China, a network that promotes Sino-German cooperation in sustainability. Among her other responsibilities, Menant handles inquiries from German firms exploring business opportunities in China’s renewable energy sector. She spoke with China Economic Review about recent trends in the Sino-German renewable energy trade and local competition.
Q: What kinds of inquiries are you receiving from German firms interested in participating in China’s solar industry?
A: Currently, German firms are mainly sourcing solar module production in China. This trend is definitely continuing. We have seen more German solar companies coming here to set up relationships with local manufacturing firms channeling through distribution networks in Europe. Looking forward, the main area where the German industry is well positioned in China is the supply of production equipment. Most manufacturing lines in China contain German machinery, automation equipment, and so on. Although here too, the Chinese industry has caught up very rapidly.
Q: How can German firms compete against Chinese solar manufacturers that have access to reduced costs of capital?
A: It’s an issue. And it’s not just access to capital: Chinese firms are benefiting from further incentives, such as free land, factories, local government tax incentives and access to cheaper raw material and utilities. It’s not a big problem for the German companies that are sourcing production here. But larger German firms competing on an international scale have to bank on a different level of quality, a different market positioning to cope with the gap in price. Branded product suppliers will still have a market.
Q: What sorts of trends do you see for German wind turbine manufacturers in China?
A: The European Chamber of Commerce and other chambers have joined forces to lobby for foreign companies and make sure they are treated equally in bidding processes. Dropping the 70% domestic content rule was a good step, because it signaled that the government is making an effort to address this complaint. But until now it remains to be seen whether this will bring any positive changes, because most foreign firms have already localized production. The level playing field is not there yet, as foreign ventures invested in China are still considered foreign companies. Meanwhile, the 70% requirement has already enabled China to completely establish a domestic supply chain.
Q: How are German wind turbine manufacturers coping with lowmargin Chinese competition?
A: Well, it starts with the bidding price: Chinese firms often bid completely under the market price for new projects, and later try to make it profitable. There’s nothing that foreign companies can do, and it’s basically the reason why no foreign bidders got involved.
Q: Where do you see a competitive advantage for German firms?
A: As margins are getting thinner, we believe the Chinese industry will need interesting and innovative solutions to increase their profitability. To that end, Econet China is now starting an initiative to promote performance, energy efficiency and profitability in the production supply chain, thanks to process optimization and other solutions from German companies. Know-how for process optimization, standard and quality insurance as well efficiency increases are crucial in these industries. The only way German firms can compete is by constantly innovating and continuously developing new products and technologies in order to stay ahead of the game.