?For German retailers, the People's Republic of China has become the second most important selling country after Italy."
These are the words of Gerd Kade, president of the Foreign Trade Association of German Retail Traders, commenting recently on the achievements of China's reform policy. China, in economic integration with Hong Kong he said, now has a broad range of commodities at her disposal, such as textiles, leather goods, watches, toys and even titanium-frames for mountain bikes ? all of which are of interest to Germany's retail trade.
If overall trade with European countries is not taken into account, the People's Republic today has the third largest share of imported goods to Germany. Only the United States and Japan are selling more on the German market. Besides European countries, the US, and Japan, only Iran currently buys more goods from Germany than China does.
This situation has evolved over a period of more than ten years. From 1979 until 1985
German exports to China grew steadily until reaching 6.4DM (US$4bn). At the same time imports from China increased at a considerably slower pace, reaching 2.5bn DM (US$1.5bn) in 1985.
In 1987 German exports began to fall, dropping below the 4bn DM (US$2.5bn) line in 1990. Meanwhile, China started an export offensive of her own. In 1991, shipments from China to Germany soared to the record value of more than 11bn DM (US$6.9bn). Germany's deficit in bilateral trade with China amounted to 7.5bn DM (US$4.7bn) last year, a figure which was almost half as big as the volume of bilateral trade (15.62bn DM/US$9.8bn). During the period from 1986 to 1991 Chinese exports to Germany. increased by 330 per cent, while German deliveries to China dropped by 35 per cent.
Several reasons account for this spectacular change. First of all, it is well-known that the Chinese government through the austerity policy implemented in 1988 and 1989 (the year when the volume of German imports from China for the first time surpassed the exports) tried to stop inflationary tendencies by reducing imports from all over the world.
Secondly, this measure was accompanied by efforts to boost exports. In Germany ? especially in the five new federal states of the former GDR ? this policy coincided with an increased demand for consumer goods, sparked by Germany's reunification in 1989.
Last, but certainly not least, Germany's foreign policies have affected its export economy for an unusually long time through the imposition of sanctions after the events of June 1989. For example, in June 1992 export credit insurances, the so-called "Hermes securities", were awarded for exports going to China for the first time in three years. Yet, the ban against China has been lifted only temporarily until the end of 1992.
German entrepreneurs complained that during the time of their own absence from the Chinese market competitors from Japan, and from European countries had the opportunity to offer cheap financing with the help of their governments, and thus undercut their German counterparts.
In view of this, the visit to Beijing of Germany's minister of foreign affairs, Klaus Kinkel, last November was of great importance. Kinkel's main aim was to achieve a normalisation in bilateral relations.
Another reason for viewing the future of German-Chinese trade in a more optimistic light can be found in the latest trade figures for the period of January to August 1992. For the first time since 1985 they show a reversal of the trend prevalent over the last few years.
As China's reform policy progresses, Germany's export industries ? mainly machinery and plant-manufacturing ? are finding more opportunities to sell products "Made in Germany" to China. The end of politically motivated trade restrictions (though only preliminary), together with German manufacturers' increasing attentiveness to the Asiatic market, provoked a considerable rise in China-bound exports during the first eight months of this year. In total, German exporters sold goods to a value almost 3.5bn DM (US$2.2bn), about 35 per cent more than during the same period the year before. Imports from China grew at the much slower rate of 2.0 per cent to reach a total of 7.6bn DM (US$4.77bn).
A slight reduction in the German deficit, prevalent in the past few years' bilateral balance of trade, therefore seems likely for 1992.
In 1991, machinery and plant were the most important goods, making up 37.4 per cent of German exports to China, followed by cars (19.4 per cent), electro-technical commodities (12.7 per cent) and chemical products (7.2 per cent). A Chinese delegation visiting Germany early last summer emphasised that China was willing to buy products from several sectors, such as in the production of fertilizers, iron and steel, trucks or textile-processing.
More than 35 per cent of Chinese products sold in Germany are clothes and leather goods. Without the quotas fixed by the EC to limit shares in the European market, the German deficit in bilateral trade with China would have been higher than it actually was. Compared to clothing, Chinese exports of electro-technical goods (13 per cent of the total) and toys (8.2 per cent) seem at first sight to be of secondary importance. Yet, both sectors enjoyed huge increases (+27.5 per cent, +57 per cent respectively) last year. Germany now ranks fourth in the list of importers from the increasingly export-minded China. With regards to exports to China, Germany holds the fifth place after Hong Kong, Japan, the US and Taiwan.
It is only natural that despite the overall growth in trade, there are some areas where German exports are decreasing. In some sectors this is due to an increase in direct investment. Take, for example, mechanical engineering, the flagship of Germany's exporting industries. On the one hand, the German machinery-making industry reported a drop in trade of 17 per cent in 1991. On the other, commodities needed for complete plants at factory sites put on 14.7 per cent during the same period.
The proliferation of joint ventures is certainly the most important reason for this trend. Last year, for example, Volkswagen signed a contract with the First Automotive Works in Changchun on the establishment of a joint venture. The volume of the investment will amount to 1.5bn DM (US$0.94bn). Along with Shanghai Volkswagen the new plant is V W's second cooperation in China.
Another German commitment in China is the electronics giant Siemens who setup a joint venture for digital telecommunication late in 1990. The Kernpinski Hotel Beijing Lufthansa Centre opened its doors in May 1992. The joint venture, which was also to a small degree financed by Korea's Daewoo roup, is the last in a series of large-scale investments from Germany in China. It comprises office buildings and apartments as well as Regus Business Centre, exhibition rooms, shops, a 540 room first class hotel, sports fields, a swimming pool and 12 restaurants and bars. The broad range of facilities is rounded off by Beijing's largest department store, the "You Yi Shopping City."
Yet, despite the growing number of cooperations, German direct investments in China remain relatively few compared to those of other countries. With a share of 1.5 per cent, Germany is lagging behind Hong Kong (68.1 per cent), the US (9 per cent), Japan (8.1 per cent), Taiwan (2.5 per cent), Singapore (2.1 per cent) and Great Britain (1.7 per cent) as regards all investments since 1979. Although in 1991 German investors spent some US$565m in China (Chinese figures) taking fourth place behind Hong Kong, Taiwan and Japan, there is a growing number of people saying that the Germans will miss the Chinese economy taking off. Fears of this kind have been provoked by the fact that investment is by and large carried out by the big enterprises, while the medium-sized and small enterprises, which make up the backbone of German industry, are still involved not only in the Chinese but the whole Far Eastern market.
Therefore, DIHT, the head organisation of Germany's Chambers of Commerce, BDI, the Federation of German Industries, and the German Asia-Pacific Business Association (OAV) are planning to launch an Asia-Pacific Committee whose main aim will be the promotion of exports to, direct investments in and cooperations with Asia. The committee will also provide German companies with information on the region s markets ? since for many potential investors, lack of knowledge is still the biggest obstacle for a greater commitment in Asia.
These three institutions hope to work the existing economic bonds between China and Germany into a smooth running network of communication for both sides. In the light of the present efforts, the prospects for mutual trade in the 90s look much brighter than they did just a few years ago. *
Hans van Ess is area manager for the German East Asia-Pacific Business Association (OAV).