German Business in China

in cooperation with
German
Business
in China
Business Confidence Survey 2019/20
Preface
The Business Confidence Survey published by the German ment, Reform Efforts, as well as Operational and Regulatory
Chamber of Commerce in China has been a key instrument challenges. The impact of the trade dispute between the US
for measuring the business sentiment of German compa- and China will also be illustrated before further analyzing
nies operating in China since 2007. For the first time the other pressing topics, such as the introduction of a Corpo-
German Chamber of Commerce in China was supported by rate Social Credit System in China, Innovation & Digitaliza-
KPMG in Germany to undertake this survey in 2019. This tion, the Competitive Situation and the Belt and Road
year’s online survey was conducted from 29 July to 12 Initiative (BRI).
September 2019 among all member companies in China.
The German Chamber of Commerce in China numbers
2019 was significantly affected by the US-China trade 2,300 member companies, representing roughly 50%
dispute and a (related) slow down of the global economy. of all German companies operating in China. With 526
Globally, a rising wave of protectionism is affecting the member companies responding, 2019 is an all-time high
opening of markets. Open markets are extremely important in terms of participation. It is the most representative
to worldwide trade and growth and they are particularly sample for the analysis of German Chamber members’
important to the export-oriented German economy. Despite business sentiment in China to date. This demonstrates
the challenges, German-Chinese economic relations have the companies growing interest in making their voices,
grown and developed well for decades. In 2018, bilateral hopes and concerns heard.
trade increased, totaling almost EUR 200 billion.
We trust the survey provides reasonable and founded
German companies in China currently operate in an environ- guidance to further expand economic relations between
ment characterized by enormous market opportunities, China and Germany and will guide the Chamber’s advocacy
complex regulatory challenges and increasing local competi- engagement in China for the next months.
tion. The survey, therefore, focuses on the general Perfor-
mance and Business Outlook, Market Access and Invest-
Jens Hildebrandt Andreas Glunz

Executive Director & Board Member of Managing Partner International Business
German Chamber of Commerce in China – KPMG in Germany
North China
Simone Pohl
Executive Director & Board Member of
German Chamber of Commerce in China –
Shanghai
Maximilian Butek
Executive Director & Board Member of
German Chamber of Commerce in China –
South & Southwest China
2 German Business in China – Business Confidence Survey 2019 / 20

Content
Executive Summary 4
01. Performance & Business Outlook 8

02. Market Access & Investment 18
03. Reform Efforts & Business Challenges 24
04. US/China Trade Dispute – Reactions & Potential Consequences 32
05. Spotlight on Current Topics 38

Corporate Social Credit System 39
Innovation & Digitalization 42
Competitive Situation 46
Belt and Road Initiative (BRI) 48
06. Profile of Surveyed Companies 50
07. Contacts 54
German Business in China – Business Confidence Survey 2019 / 20 3

Executive Summary
2019 was significantly affected by the US-China trade dispute and a rising global tendency for
rather protectionist economic policy developments paired with a decelerating global economy.
Economic slowdown and political uncertainty point to a mixed year for German companies in
China. For Germany as an export-oriented economy in particular, open markets and a rules-based
trade system are cornerstones of its companies’ success worldwide. Against this backdrop, and in
times of uncertainty, German companies are eager to see more signals from the Chinese Govern-
ment showing its commitment to deepen and throughly implement necessary economic reform
and opening-up measures. The conclusion and implementation of a high-quality EU-China Com-
prehensive Agreement on Investment (CAI) next year – with scope beyond the usual investment
protection dimension to also cover fair market access – would create new momentum and also
bring Sino-German relations to a new stage.
Business Outlook Gloomy With Small Signs Of Hope
The slowdown of the Chinese economy combined with uncertainty due to the ongoing US-China
trade dispute has left its mark. China remains a significant market for German companies, but the
momentum of recent years has diminished. Industry forecasts for 2019, in particular for Germa-
ny’s traditionally strong Automotive and Machinery/Industrial Equipment sectors have significantly
decreased. Business expectations are reported at their lowest level in years, with only 27% of
surveyed German companies expecting to reach or exceed their business targets in 2019. Howev-
er, for 2020 surveyed enterprises report tentative signs of recovery with slightly improved indus-
try development.
Investment Growth Needs Improved Market Access
China has taken a number of steps this year towards implementing reforms aimed at greater
openness and equal treatment of foreign entities in the Chinese market. Almost half of the sur-
veyed companies (45%) positively acknowledge China’s commitment to further open its market.
This is indeed progress, but is still far from a comprehensive systematic market opening at all
levels. Direct and indirect market access barriers still exist in China, with two in three respondents
(66%) reporting that they face restrictions. The survey results also reveal that the more challeng-
ing market access barriers for German companies are indirect, such as obtaining licenses, dispro-
portionate tendering processes, and insufficient lead time when implementing new regulations.
Despite reported market access barriers, the surveyed companies see various significant oppor-
tunities emerging in the Chinese market. Consistent with this finding, two thirds of surveyed Ger-
man firms plant to invest in China within the coming two years, with new manufacturing (46%)
topping the list.
However, limited market access remains a barrier to further growth. One in two (53%) of all
surveyed companies are likely or very likely to increase their investments in China if greater market
access were granted.

Reform Efforts Acknowledged but Regulatory Challenges Remain
The need to level the playing field for foreign companies remains challenging and skepticism con-
tinues on several reform promises. More than one third of surveyed German companies assess
some of the structural economic policy reforms as insufficient. On the other hand, policy reforms
with regards to “enforcement of environmental regulations”, as well as China’s “anti-corruption
campaign” are perceived as sufficient. While acknowledging the progress of environmental law
enforcement, the implementation of these regulations has nonetheless been accompanied by dis-
proportionately strict measures that affect production, supply chains and, ultimately, the strategic
investment decisions of German companies.
More than two thirds (71%) of companies surveyed noted that their most important regulatory
business challenge in 2019 is market access barriers and investment restrictions. For around
every second respondent, legal uncertainty/unclear regulatory frameworks, as well as technology
transfer requirements are the top prioritized pressing hurdles.
Human-resource related challenges remain at the top of the list of obstacles facing the operational
business of the companies surveyed. Around three out of four respondents state that finding and
retaining qualified staff is their no.1 operational business challenge. This year, the issue of difficul-
ties obtaining visa/work permits for foreign employees in China significantly rose from rank 13 to
3 when compared to last year’s survey results.
Furthermore, about half a year ahead of the planned introduction of a comprehensive national
scoring system for companies, seven out of ten German companies in China are not familiar with
the system, its mode of operation and its objectives.
Trade Dispute Impacts Noticeably
In 2019, bilateral relations between China and the US were characterized by their ongoing trade
dispute, resulting in mutual implementation of punitive tariffs. More than 8 in 10 (83%) of the
surveyed German companies operating in China feel either directly or indirectly affected by this
dispute. More than every second company reports being indirectly impacted via supply chains or
through growing volatility in global markets. While 40% do not intend to implement any changes,
other companies surveyed see diverse potential consequences ranging from revisions of product
portfolios, shifting focus to other markets through to relocating production sites. However, the
majority (77%) of surveyed companies are not considering moving operations out of China, which
demonstrated the importance of the market to them.

Key Facts
Performance & Business Outlook
• Only 27% of German companies expect to reach or exceed their business targets,
while 41% expect a negative deviation. (Fig. 3)
• However, 44% of the surveyed companies expect an increase of their net sales in
2020 of more than 5%. (Fig. 5)
• China remains to be at the top of the agenda for 53% of the surveyed companies as a
top 3 market in terms of net sales, but decreased from last year. (Fig. 6)
Market Access & Investment
• Almost half of the companies (45%) acknowledge China’s commitment to further

opening up the Chinese market (Fig 10), while nearly 2 of 3 companies experience
either direct or indirect market access restrictions. (Fig. 11)
• 67% of the surveyed companies are planning to invest in China within the next two
years. (Fig. 14)
Reform Efforts & Business Challenges
• The ranking of the top 5 regulatory business challenges is led by market access
barriers (71%), legal uncertainties (54%) and followed by technology transfer require-
ments (48%). (Fig.18)
• 42% of the surveyed companies believe that domestic companies experience a more
favorable treatment. (Fig 21)
• The top ranked operational and macroeconomic business challenges are finding
and retaining qualified staff (77%), increased labor costs (29%) and access to local
funding (16%). (Fig. 23)

Trade Dispute, Reactions & Consequences
• 83% of the participants feel either directly or indirectly affected by the US-China trade
dispute (Fig. 24), 40% of the companies stating not planning measures at this point. (Fig. 27)
• 10% of German companies are planning to move capacity out of China, which is slightly
less than in the previous year (Fig. 28), primarily due to rising labor costs and not the trade
dispute. (Fig.30)
Corporate Social Credit System
• 68% of German companies do not feel sufficiently informed about the Corporate
Social Credit System. (Fig. 32)
Innovation & Digitalization
• Top 3 digital challenges are finding skilled employees (43%), internet access restrictions
(37%) and internet speed (35%). (Fig. 40)
• Approx. 1 of 2 companies are not collaborating with start-ups, research institutes or

universities in China. (Fig. 42)
Competition
• 47% of German companies assume that their Chinese competitors can become
innovation leaders. (Fig. 43)
Belt and Road Initiative (BRI)
• 33% of German companies assess business opportunities from the Belt and Road-Initiative
as insignificant and 29% (Fig. 45) as significant. BRI only rated 10th of the top business
opportunities. (Fig. 12)

01 Performance & Business Outlook
Overall Economic Development

in China
Economic activity in China has weakened since 2018. the latest data, the aggregated profits of the Automotive
Official statistics placed real GDP growth at 6.6% in 2018, sector contracted by 16.6%, comparing to the 1.8% decline
the lowest rate since 1990. Between January and June in 2018. As German companies in China are concentrated in
2019 real gross domestic product (GDP) grew even less the Automotive sector, they are disproportionately affected.
with only a 6.3% increase.
However, some recent signs are encouraging when looking
Under the pressure of subdued domestic and global at the purchasing manager indexes (PMIs), which are the
demand, three of China’s main economic indicators had leading indicators of sales, employment, inventory, and
decreased sharply by September 2019: industrial production pricing. PMIs showed signs of recovery in August 2019, as
dropped from 6.2% in 2018 to 5.6%, as did retail sales domestic demand and production both stabilized slightly.
dropping from 9.0% to 8.2%. Moreover, fixed asset invest- Also aggregated enterprise profits reversed its previous
ments fell from 5.9% in 2018 to 5.4% in 2019, with invest- contraction of - 3.1% in June 2019 and saw a 2.6% expan-
ment in the manufacturing sector dipping from 4.9% in sion in July 2019. The same development was observed for
2018 to an alarmingly low rate of 2.5% in 2019. After the producer price level, which after being negative in July
year-on-year expansion for two decades, China saw its first and August 2019 at -0.3% and -0.8% respectively, was
contraction of automobile sales of 3% in 2018, with the expected to expand at the end of 2019, likely reversing that
2019 contraction projected at 5%. By August, according to contraction slide going forward.

Industry Development
When compared to 2018, German companies’ industry However, the expectation for industry development has
development in China carries less optimism in 2019. improved to 40% for the year 2020 compared to the
Roughly one third of the companies surveyed (31%) assume forecast growth of 31% for 2019. Correspondingly, a
an improvement in their industry based on the forecast from decrease in development is expected to occur for 28% of
2019. This is significantly lower compared to the prior year the surveyed companies compared to the forecasted
when a 54% majority of the surveyed companies rated the negative growth of 38% for 2019.
expected development of their industry in China as improv-
ing. At the same time, the percentage of companies
expecting industry development to worsen in 2019 doubled
to 38%. This is the lowest level of expectation in years.
How do you evaluate the development of your industry in China in 2019 and expect its development for 2020? (n=460)
Fig. 1: How do you evaluate the development of your industry in China? (n=460)
100
31
80 40
53 54
64
60
30
30
40
32 27
25
20 38
28
15 19 15
10
0
2018 2018 2019 2019 2020
(expectation in 2017) (forecast) (expectation in 2018) (forecast) (expectation in 2019)
Worsening Unchanged Improving
Figures in percent
Please note: Deviations from 100 percent are due to rounding differences and the answer option

In terms of the development outlook for specific industries, companies in the Healthcare Products (65%) and IT/
Automotive companies have the lowest expectation with Telecommunications (59%) sectors reported the largest
69% expecting a worsening in 2019, followed by Machin- levels of confidence with regard to the development
ery/Industrial Equipment with 39%. In contrast, German outlook.
How do you evaluate the development of your industry in China in 2019 and expect its development for 2020? (Industry focus)
120 2: Industry-related assessment: How do you evaluate the development of your industry in China for 2020?
Fig.
100
16
31
38
80 15
65 59
60
30
38
40 69
24
20 29 39
24
18
6
0
Healthcare IT/Telecommunications Business Machinery/ Automotive
Products Services Industrial Equimpent
Worsening Unchanged Improving
Figures in percent
Please note: Deviations from 100 percent are due to rounding differences

Business Target Achievement
While more than half of the surveyed companies (55%) It is also noteworthy that for 2018 and 2019 the original
expected in 2018 that they would exceed or achieve their expectation for meeting business targets was better than
business targets in 2019, the 2019 forecast looks worse. the later updated forecasts.
Only 27% expect the same, whereas 41% actually expect a
negative deviation. The slowdown of the Chinese economy Automotive companies struggled more than any other
paired with uncertainty due to the ongoing US-China trade sector to achieve their targets, whereas companies in the
dispute has left its mark, as in 2017 64% and in 2018 53% of Healthcare Products and IT/Telecommunication industries
the respondents stated that they exceeded or archieved achieved their targets for the most part.
respective targets for 2018.
To what extent will you be able to achieve your business targets in 2019? (n=455)
Fig. 3: To what extent will you be able to achieve your business targets? (n=455)
120
100 4
10 9 9
14 22
31
80 18
32 46
60 60 31
31
33
40
29
40 31 24
21
20 21
12 15
11 17
10 7
0 4 2 3 2
2017 2017 2018 2018 2019 2019

(expectation (forecast) (expectation (forecast) (expectation (forecast)
in 2016) in 2017) in 2018)
Not achieve Partly achieve Mostly achieve Achieve Exceed
Figures in percent

Year-on-Year Development for Companies in China
Like overall economic development in China, the growth of However, when compared to 2019, expectations for 2020
the surveyed companies is also expected to slow down in are more promising. 43% of the companies surveyed expect
2019. Roughly one third of the surveyed companies (35%) net sales growth and 35% of profit growth of more than
expect net sales growth of more than 5% for 2019 – down 5%. Furthermore, 25% of the companies expect to increase
from 70% in 2018 – and to grow profits of more than 5% their investment by more than 5% (up from 24% for 2019)
(29%) – down from 50% in 2018. and 28% forecast an increase in their number of employees
by more than 5% (up from 27% for 2019).
Fig. 4: Will your company generate growth of at least 5% in regards to investment, employment, profit, and net sales?
(n=458)
80
69 70
70
60
56
56 50
49
50
45
41 43
42
44
40 37 35
42 35 38 35
29
30 28
27 25
35 24
20
10
0
2016 2017 2018 2019 2020
(forecast) (budget)
Investment Employment Profit Net sales
Figures in percent
Net sales 2 12 37 38 6
Profit 2 13 44 31 4
Investment 4 12 52 20 6
Employment 2 11 54 24 4
0 10 20 30 40 50 60 70 80 90 100
Substantial decrease Decrease (5 – 20 %) Similar/unchanged Increase (5 – 20 %) Substantial increase

(>20 %) (+/- 5 %) (>20 %)
15
0
2016 2017 2018 2019 2020
(budget)
Net sales Profit Employment Investment
The expectation for 2020 when compared with the fore- between 13% (employment) and 16% (investment) for the
casts in 2019 shows a diverse picture. Increases are key performance indicators (KPIs) net sales, profit, invest-
expected to range between 44% (net sales) and 26% ment and employment. In general, the outlook seems to be
(investment), whereas decreases are expected to range improving slightly.
Fig.
Year 5:
onPlease indicate thefor
year development year on year
German development
companies for in
in China your company
following in China in the following areas:
areas:
2020
2020 (Budget) comparedtoto2019
(Budget) compared 2019(Forecast)
(Forecast). (n=460)
Net sales 2 12 37 38 6 6
Profit 2 13 44 31 4 6
Investment 4 12 52 20 6 6
Employment 2 11 54 24 4 5
0 10 20 30 40 50 60 70 80 90 100
Substantial decrease Decrease Similar/unchanged Increase Substantial increase I don’t know

(<20%) (5 – 20%) (+/ - 5%) (5 – 20%) (>20%)
Figures in percent

Importance of Chinese Market to German Companies
Firms operating in China will continue to enjoy numerous China is among the top 3 markets by net sales for 53% of
market opportunities, albeit fewer than in prior years. Most the German companies surveyed, top 3 in terms of global
of these relate to steady growth in private consumption as a profit for 47%, and top 3 in terms of global investment for
share of GDP. This will benefit the Business Services sector 40%. For all three performance indicators the share of China
in particular. Opportunities may be more hard to convert for as a top-3 has decreased compared to 2018.
traditional economic drivers, such as the Heavy Industry and
Construction sectors because policy efforts are underway
to reduce overcapacity and move the broader economy
elsewhere.
Fig. 6: Does your company´s China business rank as one of the top 3 markets for your parent company in Germany?
(n=457)
Year on year development for German companies in China in following areas: 2019 (Forecast) compared to 2018 (n=458)
70
62
60
60
60
48 53 53
57 50
51
50 47
44 46
42 47
43
40
40
38
30
20
10
0
2013 2014 2015 2016 2017 2018 2019
Global net sales Global profit Global investment
Figures in percent

Net sales 2 12 37 38 6
Profit 2 13 44 31 4
Investment 4 12 52 20 6
Employment 2 11 54 24 4
For roughly one out0of ten of 10
the surveyed
20
companies,
30 40
China50remains60
their No.70
1 global
80
market90
for all100
three metrics. The
share of companies that place China as their No. 1 market decreased slightly in all indicators when compared to 2018. This,
however, does
Substantial not predict
decrease a trend
Decrease as%)
(5 – 20 the 2019 and 2017 results are
Similar/unchanged almost
Increase (5 –identical.
20 %) Substantial increase
(>20 %) (+/- 5 %) (>20 %)
Fig. 7: How does your company’s China business most recently rank within your parent company’s global net
sales, profit, and investment? (Share of respondents indicating that China is their No. 1 market) (n= 457)
15
12
16
31
15
9 59
15 15
30
13 13
6 11
10 10
8 8
24
3
39
18
0
Global net sales Global profit Global investment
2017 2018 2019
Figures in percent
In terms of net sales, 20% of the surveyed companies in China generate more than 20% of net sales of the overall group net
sales of the parent company based in Germany. 24% generate between 10 – 20% and a further 18% generate at least 5% of
the overall group net sales in China.
The survey shows that 18% of the surveyed companies in China generate more than 20% of the overall group profits after
tax in China. A further 16% make between 10 – 20% of their profits after tax from their Chinese operations and further 25%
generate less than 5% of the profit after tax in China. Global net sales in China appear to be stronger than profits.

Fig. 8: What is the percentage of net sales and profit after tax generated by your China operations for the overall
German Group? (n=453)
3
> 50%
3
17
20 – 50%
15
24
10 – 20%
16
18
5 – 10% 18
18
< 5%
25
20
I don‘t know
22
0 5 10 15 20 25 30
Profit after tax Net sales
Figures in percent
Based on these results it is obvious that German groups consider China to be one of their most important markets. In
terms of industries, the Chinese market appears to be very important for the Business Services, Automotive and the
Machinery/Industrial Equipment industries. China also continues to be a significant market for the Healthcare Products
and IT/Communications sectors.
Fig. 9: Industry-related assessment: What is the percentage of net sales generated by your China operations for
the overall German Group?
Net sales — by industry focus (in percent)
1
> 50 % 2 7
20 – 50 % 24 24 12 9
10 – 20 % 30 28 19 47 12
5 – 10 % 21 19 13 18 19
< 5% 13 13 38 12 23
I don‘t know 10 14 31 12 30
0 30 60 90 120 150
Automotive Machinery / Industrial Equipment IT / Telecommunications Healthcare Products Business Services
Figures in percent
Profit after tax — by industry focus (in percent)

> 50 % 5 2 7
02 Market Access & Investment
The fact that German trade with Asia has reached almost In 2018, China announced its intention to remove foreign
double the size of trade with the US underscores the equity caps and other restrictions in the Automotive manu-
relevance of the Asian market to the German economy. facturing sector by 2022. Despite the surprising tightening
China is Germany‘s most important trading partner in goods of the Healthcare market on a national level beginning in
(exports and imports), with more than EUR 199.3 billion 2015, it is inevitable that this market will be opened more.
traded between Germany and China in 2018. Although the FDI Negative List still allows to prohibit 100%
foreign-owned hospitals, local authorities are already
China’s Commitment to Market Opening and Recent preparing initiatives in their regions to open up the sector to
Policies foreign investment. In fact, Chinese premier Li Keqiang
announced at the Boao Forum in March 2019 that foreign
China has taken a number of steps this year towards investor access to China’s Healthcare market will be further
implementing reforms aimed at greater openness and equal expanded.
treatment of foreign entities in the Chinese market. In
March 2019, the Chinese National People’s Congress It is important to note that all restrictions that are still being
passed the new Foreign Investment Law (FIL), effective applied, yet are no longer mentioned in the new FDI
from 1 January 2020. This marks the first legally binding Negative List, should cease to be applied by the end of
prohibition of forced technology transfer, albeit limited to 2019. It is also worth noting that foreign investment is still
administrative measures. The explicit and implicit pressures completely prohibited in several sectors, including internet
forcing technology transfers have often hampered close and services and platforms, genetic engineering in agriculture
sustainable cooperation in the past, especially in highly and the tobacco industry.
innovative areas such as Industry 4.0.
Almost half of the surveyed companies (45%) assess

China´s commitment to further opening the Chinese market
to foreign investment as serious or rather serious. However,
25% do not acknowledge this commitment. The Healthcare
Products and Automotive sectors both believe (with 50%
and 48% respectively) that China is seriously or rather
seriously committed to further opening its market.
Fig. 10: How do you rate China‘s commitment to further opening the Chinese market to foreign investment? (n=517)
How do you rate China's commitment to further opening the Chinese market to foreign investment ? (n=517)
Serious commitment 17
Rather serious
28
commitment
Neutral 30
Less serious 21
commitment
No commitment 4
0 5 10 15 20 25 30 35
Figures in percent
Percentage of respondents

Market Access
While formal market access restrictions are slowly lifted, 12% of this survey`s participants face “direct market access
mainly through the revisions of the FDI Negative List, restrictions” with a further 29% experiencing “difficulties in
indirect regulatory market access barriers remain a hurdle obtaining licenses, certifications or product approval“ and
for German companies operating in China. 63% of all 24% being confronted by “disproportionate bidding and
surveyed companies face restrictions to accessing the tendering processes”. However, 37% of surveyed compa-
Chinese markets. The significance of the market access nies reported experiencing no market access restrictions.
barriers and investment restrictions is underscored by it
topping the list of regulatory business challenges (see pg. 26).
Fig. 11: What kind of market access restrictions is your company faced with in China? (n=517)
Level of market access restriction (percentage of respondents)
Difficulties in obtaining licenses, certifications or

29
product approvals, etc.
Disproportionate bidding and tendering processes 24
Lack of participation in the development of

22
industry standards
Insufficient lead time 13
Direct market access restrictions (e.g. sector is

12
prohibited or restricted on Negative List, etc.)
Other 5
None 37
0 5 10 15 20 25 30 35 40
Figures in percent
Please note: Multiple answers possible
Potential Sources of Business Opportunities
Despite reported market access restrictions, the surveyed This is followed by increasing demand for foreign brands
companies see a variety of significant or somewhat signifi- and quality (65%), participation in innovation (61%), sourcing
cant opportunities emerging in the Chinese market. and supply chain (59%) and internationalization of Chinese
companies (54%) as further significant sources for business
68% of the surveyed companies see growth of domestic opportunities.
consumption as the top opportunity for their businesses.
In addition, structural reforms and consumption upgrading
mean that China’s economy has moved away from its
typical reliance on trade and heavy investment.

Top 10 business opportunities in China (in percent)
Fig. 12: Please rate the following opportunities for your company’s China business. (n=512)
Growth of domestic
consumption 68 18 13 1
Increasing demand
for foreign brands 65 23 11 1
and quality
Participation in innovation 61 27 11 1
Sourcing and supply chain 59 26 12 3
Internationalization of
54 30 13 3
Chinese companies
Digital technologies:
51 26 19 4
Mobility
Production of goods and
50 28 19 3
service for export
45 31 20 4
eCommerce
41 30 24 5
Artificial Intelligence (AI)
Projects related to
29 32 33 6
Belt and Road Initiative
0 10 20 30 40 50 60 70 80 90 100
Significant Neutral Insignificant I don’t know
Figures in percent
German businesses see various possibilities in the Chinese However, market access remains a critical topic for a
government’s plan to transform its economy into a sustain- number of industries. 53% of all surveyed companies would
ability-oriented, innovation-driven and domestic consump- likely or very likely increase their investment in China if
tion-focused one. This is the case for various German greater market access were granted.
industries, e.g. car manufacturers, as China is by far their
most important market.
Fig. 13: If meaningful or greater market access were granted to your industry, how would this impact your compa-
ny’s investment decisions in China? (n=514)
Impact on company’s investment decisions in China, if greater access were granted to respective industry (in percent)
Very likely to increse

20
investment
Likely to increase
33
investment
Neutral 36
Rather unlikely to
6
increase investment
Unlikely to increase
5
investment
0 5 10 15 20 25 30 35 40
Figures in percent

Investment Trends
A comparison between 2018 and 2019 shows that German September 2019. Most investment flowing into China
investors in China are acting more cautiously this year. comes from Hong Kong SAR, making up slightly more than
German investment in 2018 totaled USD 3.68 billion. From 70% of the total amount of FDI in China from January to
January to September 2019, however, German investment September 2019. The restraint in 2019 amongst German
in China dropped substantially to only USD 1.38 billion with investors appears to be due to the sluggish development of
most investment coming in February and March (USD 290 the Chinese economy and the still hesitant opening of the
million and USD 260 million respectively). Despite this drop, Chinese market. The uncertainty surrounding the US-China
Germany still ranks 8th amongst the top 10 countries and trade dispute may also play a role in this respect, albeit
regions investing in China in the first half of 2019. The USA minor.
with an investment volume of USD 2.52 billion and Great
Britain at USD 1.98 are ranked 6th and 7th respectively by
Investment Planning in China
Fig. 14: Is your company planning to further invest in China within the next two years? (n=512)
Is your company planning to further invest in China within the next two years? (n=512)
67 46
Yes
66 46
No 26
18
8
Unsure
16
0 10 20 30 40 50 60 70 80
2019 (forecast) 2018 (forecast)
Figures in percent
As 67% of the surveyed companies state that they are planning to further invest in China in the next two years, the outlook
is strong. Most investments are intended in new manufacturing facilities (46%), new office facilities (37%), machines for
automation (36%) and also new R&D facilities (35%). Only the volume of intended investment in R&D facilities decreased
from 2018 (41%) to 2019 (35%).
Areas of planned investments in the next two years (in percent)
New manufacturing 46
facilities 46
37
New office facilities
35
22 GermanMachines
Businessfor
in China – Business Confidence Survey 2019 / 20
automation and 36
productivity 36
Fig. 15: In which areas are you planning to expand your investment in China within the next two years? (n=341)
Areas of planned investments in the next two years (in percent)
New manufacturing 46
facilities 46
37
New office facilities
36
Machines for
automation and 36
productivity 36
development
New Research and 35
Development facilities 41
Distribution channels 25
(incl. eCommerce) 20
18
Mergers and Acquisition
12
0 5 10 15 20 25 30 35 40 45 50
Figures in percent. Please note: Multiple answers possible
Reasons for not Investing
In 2019, the main reasons for not investing in China are lower growth expectation (42%), large investments already made in
the past (33%) as well as HR issues (32%), while the dominating reason in 2018 was rising labor costs (45%). The trade
dispute between the US and China is not yet seen as a dominating reason for not investing in China; it may actually trigger
localization in China and Asia (please see pgs. 33 – 37).
Fig. 16: What are the main reasons for not investing in China? (n=169)
Low expectation for market

42
expansion/expectation
of slower growth in China 32
Made large investment 33

in the past 23
HR issues
32
(i.e. rising labor costs,
talent shortage)*
Increased domestic 25
competition 26
Lack of regulatory
transparency 21
and predictability 29
Uncertainty about 20
US-China trade policy 22
Inconsistent enforcement 13
of regulations 20
Insufficient legal 11
protection of the investment 17
0 5 10 15 20 25 30 35 40 45 50
2019 (forecast) 2018 (forecast) *

2018 data not available
Figures in percent. Please note: Multiple answers possible

03 Reform Efforts &
Business Challenges
Evaluating the Chinese government’s recent efforts, not energy production, CO2 reduction measures in the industrial
only in the area of market opening to global investors, but in and transport sectors, recycling and circular economy, water
various fields of the Chinese economic policy, there are treatment and electromobility. German companies operating
areas where companies still see demand for further action. in China give strong consideration to environmental protec-
In particular, more than one third of surveyed companies tion. In this regard, 68% of the surveyed German compa-
rate “Improvement of level-playing field for foreign companies see sufficient or rather sufficient efforts being made by
nies” (37%), “Reform of state-owned enterprises” (35%) as the Chinese government to “enforce environmental law
well as “Financial sector liberalization” (29%) as insufficient. regulations.” This represents a slight increase when com-
Furthermore, one in four companies are not satisfied with pared to 2018, when 66% of the respondents found those
the efforts made in “Economic reform and market opening efforts sufficient. At the same time, the implementation of
measures” (26%) and “Improvement of Rule of Law” the enforcement of these laws challenges the affected
(24%). companies (please see pg. 28).
With the 13th Five-Year Plan and the reform of the Environ- The Chinese government’s engagement in its “Anti-corrup-
mental Protection Law at the beginning of 2015, many tion campaign” is a positive move for more than half the
topics have gained in importance, such as renewable companies surveyed (56%).
Fig. 17: How do you rate recent efforts by the Chinese government in the following areas? (n=526)
Improvement of level playing

37 31 29 3
field foreign companies
Reform of state-
owned enterprises 35 20 30 15
Financial sector liberalization 29 23 37 10
Economic reform and

26 39 33 2
market opening measures
Improvement of Rule of Law 24 39 34 3
Improvement of
21 38 37 4
regulatory framework
Anti-corruption campaign 16 56 24 3
Enforcement of environmental
13 68 17 2
law regulations
0 10 20 30 40 50 60 70 80 90 100
Insufficient Sufficient Neutral I don't know
Figures in percent. Please note: Deviations from 100 percent are due to rounding differences

Regulatory Business Challenges
German companies in the Chinese market face various In 2018 internet-related challenges topped the list, e.g. slow
regulatory business challenges. 71% of companies note that cross-border internet speed, followed by bureaucracy/
their top regulatory business challenge in 2019 is “market administrative hurdles, legal uncertainty and a lack of clarity
access barriers and investment restrictions”, 54% state that in regulatory frameworks.
“legal uncertainties and unclear regulatory frameworks” and
48% that “technology transfer requirements” are the most With respect to market access barriers and investment
pressing regulatory business challenges they presently face restrictions please refer to the corresponding chapter on
in China. page 20.
Top 10 regulatory business challenges (in percent)

Fig. 18: Please rank your top 5 regulatory business challenges. (n=480)
Market access barriers and investment restrictions 71 8 6 7 5
Legal uncertainty and unclear regulatory

54 21 15 6 3
frameworks
Technology transfer requirements 48 28 6 4 13
Intellectual Property Rights enforcement 33 31 19 12 4
Bureaucracy and administrative hurdles 19 38 22 15 6
Obtaining required licenses 15 29 31 16 9
Customs regulations and procedures 13 31 29 15 12
Slow cross-border internet speed 9 24 30 22 14
Internet access restrictions 5 17 31 31 14
Preferential treatment of local 10 15 16 33 24

companies/protectionism
0 10 20 30 40 50 60 70 80 90 100
Top 1 challenge Top 2 challenge Top 3 challenge Top 4 challenge Top 5 challenge
Answers ranked according to respondent’s priority; Figures in percent


Intellectual Property
The challenges with respect to intellectual property (IP) of surveyed German companies stated they have not
seem to have diminished this year when compared with experienced challenges with respect to their IP. Despite
2018. The main challenges concern “prosecuting IP infringe- significant improvements to IP regulations over recent
ments in court” (22%), “insufficient protection by laws and years, it appears that IPR protection is still a significant
regulations” (18%) and “IP-theft by employees” (18%). 47% business challenge.
Fig. 19: Has your company been faced with IP challenges? (n=438)
Challenging process when prosecuting

22
IP infringements in court
Insufficient protection by text of
18
IP-related laws and regulations
IP theft by employees 18
Expectation of technology transfer

9
to Chinese companies
Complex and time consuming
7
patent application
We have not experienced any
47
issues around IP so far
0 5 10 15 20 25 30 35 40 45 50
2019 (forecast)
Figures in percent

Environmental Regulations Enforcement
The protection of the environment is of utmost concern to tionately strict measures that affect production, supply
modern industry. In 1979, the Chinese government passed chains and, ultimately, the strategic investment decisions of
its first environmental law, building a solid foundation for German companies. Often, Chinese government authorities
their national sustainability strategy. As a result of the apply a one-size-fits-all approach that does not necessarily
government’s 13th Five-Year Plan and the reform of the take into account industry-specific features.
Enviromental Protection Law at the beginning of 2015,
topics such as renewable energy production, CO2 reduction This year, respondents to the survey reported that the
measures in the industrial and transport sectors, recycling situation they face with respect to environmental concerns
and circular economy, water treatment and electromobility in China is difficult due to increased regulatory enforcement
gained in importance. German companies operating in measures. In particular, the main challenges are unan-
China give strong consideration to environmental protection nounced audits (32%) and repeated audits (29%) by
and welcome the Chinese government’s efforts to reduce Chinese authorities. However, 45% of the companies
overall pollution in China. The implementation of Chinese surveyed state that they are not facing any challenges as
environmental law, however, is accompanied by dispropor- regards the enforcement of these actions.
Fig. 20: Has your company encountered any of the following issues during the enforcement of environmental
Percentage of companies
protection encountering
measures? (n=448) the following issues during the enforcement of environmental
protection measures
Unannounced audits by Chinese authorities 32
Repeated audits by Chinese authorities 29

Application of disproportionate and
incomprehensible limit values and 17
measurement methods
Discretionary measures by authorities 16
Neglect of industry-specific peculiarities

15
(“one-size-fits-all” approach)
Unfair treatment compared to domestic
15
companies in your industry
Company was forced to relocate 4
We have not faced any challenges 45
Others 5
0 10 20 30 40 50
Figures in percent

Leveling the Playing Field Remains Challenging
International companies have been part of Chinese market between foreign and domestic companies is diverse. 42%
development for decades. The German economy is deeply of the German companies surveyed report that they as FIEs
anchored in China: German companies have so far invested are treated unfavorably compared to domestic companies,
an overall amount of approx. 81 billion EUR in China, created while around one third (35%) think FIEs and domestic
more than one million jobs and have thus contributed largely companies are treated the same. However, 1 in 4 (24%)
to growth, innovation and society. However, the picture with companies surveyed believe that FIEs receive some or full
respect to the perception of differences in treatment favorable treatment.
Fig. 21: In your industry, how do Chinese authorities treat Foreign Invested Enterprises (FIEs) compared to domes-
tic companies? (n=396)
FIEs receive full favorable treatment 5

compared to domestic companies
FIEs receive some favorable treatment
19
FIEs and domestic companies are treated equally 35
FIEs receive some unfavorable treatment

36
FIEs receive full unfavorable treatment
6
0 5 10 15 20 25 30 35 40
Figures in percent
Lobbying for reciprocal investment 45

environment in China
42
Supporting additional 38
German investment in China
37
German Business in China – Business

36 Confidence Survey 2019 / 20 29
Advocating to improve IPR protection
and enforcement in China
48
FIEs receive full favorable treatment compared to
6
domestic companies
0 5 10 15 20 25 30 35 40
Asking for the most important issues that the German This is followed by “limited market access” (38%) and
government should address to support German busi- “intellectual property protection” (36%) as the next most
nesses in China, for 45% of the companies surveyed, pressing concerns.
“absence of a level playing field” is the primary concern.
Fig. 22: What do you consider most important that the German government should do to support German busi-
nesses in China? (n=466)
Most significant needs for discussions in support of German business in China (in percent)
Advocate for a level playing field for German 45

businesses in China
42
38
Demand improved market access in China
37
Advocate to improve IPR protection and 36

enforcement in China
48
28
Support additional German investment in China
29
Lobby for reciprocal investment environment 26

in China
29
0 10 20 30 40 50 60
2019 2018
Figures in percent
Operational Challenges for German Entities in China
German companies in China also face operational hurdles. reaching a record low of 5.53% for 2020 – the lowest
Human Resources-related challenges top the list of obstacles expected wage cost rise since the Chamber started collect-
facing the operational business of the companies surveyed. ing data at a China level in 2012. This year, the issue of
This was likewise the case in 2018, where HR-related difficulties obtaining visa/work permits for foreign employ-
issues remained unchanged as the most pressing opera- ees in China significantly rose from rank 13 to 3 when
tional concern. compared to last year’s survey results.
Finding and retaining qualified staff was the leading opera- Access to local funding for surveyed companies is reported
tional challenge for 77% of the respondents followed by as one of the top five operational business challenges for
“Increasing labor costs” on rank 2. The annual wage in the first time with 37% stating it as one of their top-3
China averaged RMB 82.461 in 2018, an 11% increase in challenges. Foreign firms operating in China generally find it
comparison to 2017. In its Labor Market and Salary Report difficult to access funding or loans from local banks. Often,
2019/20, the German Chamber of Commerce in China these enterprises have sufficient capital, but non-ownership
reported that after last year’s slight rise in the expected of production facilities that could be used as guarantees
wage growth, the average expected wage growth of means they have little basis for procuring funds from banks
German companies in China resumed its downward trend, in China.

Please
Fig. 23:rank your
Please top your
rank 5 operational and macroeconomic
top 5 operational business challenges.
and macroeconomic business (n=476)
challenges. (n=476)
Finding and retaining qualified staff 77 7 6 6 4
Increasing labor costs 29 53 9 6 3
Difficulties obtaining visa/working

9 33 40 10 8
permits for foreign employees
Access to local funding 16 19 37 16 7
Rising operational costs (real estate,

6 27 39 18 9
rent, utility costs)
Increasing commodity and 7 23 38 15 17

energy prices
Corruption 7 14 43 18 17
Intellectual Property Rights 5 15 32 32 15

infringement
Competition from non-compliant 6 16 24 37 17
competitors
Currency risks 3 21 20 38 18
0 10 20 30 40 50 60 70 80 90 100
Top 1 challenge Top 2 challenge Top 3 challenge Top 4 challenge Top 5 challenge
Answers ranked according to respondent’s priority; Figures in percent


04 US / China Trade Dispute –
Reactions & Potential
Consequences
As the tit-for-tat trade dispute between the US and China items such as rare earths. As China pledged own tariffs,
entered its second year in 2019, a sharp escalation of more than 60% of US goods are now under sanctions.
bilateral tensions could be seen during the summer (espe- Bilateral trade has thus contracted significantly in 2019. By
cially in August), followed by some signs of deceleration September, according to the latest available data, bilateral
from both sides recently. While there are hopes for a trade had dropped by 14.8% from 2018, with China’s
so-called phase one agreement between both countries, it imports from the US shrinking by an alarming 26.4%. Even
will be limited to the suspension or removal of some if some agreements are made this year, as many hope for
punitive tariffs in the best case, plus Chinese promises to – there are incentives for both sides to stall until late 2020
purchase US farming goods. before announcing a deal. The long-term confrontation of
the US and China in technology may carry on, meaning
In August 2019, the US announced new tariffs, resulting in continued movement amongst supply chains in 2020 and
almost all Chinese goods under sanction excluding only beyond.
Fig. 24: What impact does the US-China trade dispute have on your company in China? (n=457)
What impact does the US-China trade dispute have on your company in China? (n=457)
4
Immediate/direct impact
26
(e.g. through tariffs on exports and imports)
Indirect impact through growing volatility in global markets 37
Indirect impact via supply chain disruption 19
No impact 17
0 5 10 15 20 25 30 35 40
Figures in percent
83% of the surveyed German companies feel either directly 56% are indirectly negatively affected by the trade dispute,
Effects when directly affected by the US-China
or indirectly affected by the US-China trade dispute. 90% of whereEffects
the mainwhen indirectly affected by the US-China
indirect negative effect being the result of
trade dispute (in percent) trade dispute (in percent)
the companies who are directly affected by the trade instability in the market (37%). 26% report to be directly
dispute expect negative or very negative outcomes. The affected via customs and duties.
effects are moreVerynegative
positive than
2 for those companies that are
only indirectly affected. 78% of these companies reported
6
Neutral effects.
negative or very negative Positive 8
Negative 53 Neutral 14

Very negative 37 Nagative 63
Comment 2 Very negative 15

0 5 10 15 20 25 30 35 40
Effects when directly

Fig. 25: If youraffected
company by the US-China
in China Effects Fig.
is directly affected by when indirectly
26: affected by
If your company in the US-China
China is indirectly affected by
trade dispute (in percent)
the US-China trade dispute, how would you rate the trade dispute (in percent)
the US-China trade dispute, how would you rate the
effects? (n=120) effects? (n=87)
Very positive 2 Positive 8
Neutral 6 Neutral 14
Negative 53 Negative 63
Very negative 37 Very negative 15
0 20 40 60 80 0 20 40 60 80
Figures in percent Figures in percent

The Business Services, Healthcare Products, Auto and Machinery/Industrial Equipment sectors are mostly negatively
affected. In contrast, half of the IT companies surveyed are experiencing no effects from the trade dispute. According to
the surveyed companies, textile and electronic producers are leaving China to gain from lower wages in other countries, a
trend only accelerated by the trade dispute.
The measures being taken to counter the trade dispute are diverse, with 40% of the surveyed companies stating that they
are not planning measures at this point. The most significant change for 2019 is expected in the category “not affected by
trade disputes”, where 46% of German companies felt this influence in 2018.
Fig. 27: If your company in China is directly or indirectly affected by the US-China trade dispute, are you consider-
Possible changes to local business in China if directly or indirectly affected by
ing changes to your local business? (n=205)
the US-China trade dispute
25
Revise product portfolio
7
Shifting focus to 19
other markets 9
Reduce local investment 19

and/or employment 4
Relocate production 16
sites 7
Increase local investment 14

and/or employment 3
40
No changes
37
3
Not affected
46
4
Others
5
0 5 10 15 20 25 30 35 40 45 50
Figures in percent

40
No changes
37
3
Not affected
46
4
Others
5
0 5 10 15 20 25 30 35 40 45 50
2019 (forecast)
Moving Capacities 2018 (forecast)
/ Operations
The majority of German companies in China manufacture survey, 77% of German companies have not considered
for the local and Asian markets, albeit partly with worldwide moving operations out of China, which is slightly less
supply chains. For many German companies, China is an vis-à-vis 2018 (81%). However, 10% are in fact considering
accordingly significant market in their enterprise portfolio this, which is slightly less than the 14% that stated so in
(see pg. 13) and changes to this situation would be long- 2018, with no particular deviations across industries.
term strategic decisions. According to the findings of this
Fig. 28: Has your company recently made the decision to move capacity away from China? (n=458)
Assessment on moving business outside China
77
No
81
13
No, but we are considering
5
10
Yes
14
0 10 20 30 40 50 60 70 80 90
Figures in percent
Out of the companies in 2019 that plan to or are considering moving, 64% plan to build up additional facilities in another
country (“China + 1 strategy”), whereas 36% intend to shift capacities outside China entirely, i.e. leave the Chinese
market.
Fig. 29: What are you doing or considering doing outside China? (n=103)
Considerations of business moving outside China
Shifting capacities
outside China
(leaving the Chinese market)
36
64
Building-up
additional facilities
(i.e. “China + 1 strategy”)
Figures in percent

Rising costs, including labor, is by far the dominating factor for 71% of those companies who are considering moving
out of China, followed by what is seen as an unfavorable policy environment (33%).
Fig. 30: What are the most important reasons for moving capacity outside China? (n=104)
Reasons for moving the company outside China
71
Rising costs, including
labor costs 54
33
Unfavorable policy
environment 23
26
Market growth in
other locations 31
25
Negative impact from
US-China trade dispute 27
24
Strategic reprioritization
of other countries 37
22
Market access barriers
17
19
Growing competition in China
12
18
Reduced growth projections
10
for Chinese economy
0 10 20 30 40 50 60 70 80
Figures in percent
Forecast for future company location
SouthEast Asia 52
India 25
Central/Eastern Europe 19
Western Europe 17
USA 5
36 German Business
Central/South in China3– Business Confidence Survey 2019 / 20
America
Africa 2
24
Strategic reprioritization
of other countries 37
22
Market access barriers
17
0 10 20 30 40 50 60 70 80
Of those considering such a move, their preferred destinations are South East Asia (52%), followed by India (25%)
and Central/Eastern Europe (19%).
Fig. 31: If your company recently made the decision to move capacity outside China, where to? (n=99)
Forecast for future company location 32
Southeast Asia 52
India 25
Central/Eastern Europe 19
Western Europe 17
USA 5
Central/South America 3
Africa 2
Other 6
0 10 20 30 40 50 60
Figures in percent

05 Spotlight on Current Topics
Corporate Social Credit System

Since the end of the 1990s, China‘s policy makers have For the future engagement of German business in China,
been working on a credit rating system for society as a the topic is of high relevance, because control mechanisms
whole. In 2014, the State Council published the “Planning of the market and the legal system are being transformed
Outline for the Construction of a Social Credit System”, by means of a comprehensive corporate scoring system for
which is considered a draft and roadmap for the Social companies into an unprecedented meta-system. This type
Credit System (SCS). The SCS has distinctive targets: of system could lead to a confidence-building effect on
citizens, businesses, organizations, as well as institutions companies in their day-to-day business. For example, it
and Chinese authorities themselves. The purpose of the might help to better assess potential business partners
comprehensive national scoring system for companies is before entering or deepening a business relationship with
to develop a tool to evaluate corporate behavior, assess them. However, it will only work if market participants are
creditworthiness and to create a holistic solution against aware of how ratings are determined and what the subse-
market problems, such as fraud, corruption or disregard of quent consequences would be of a certain rating. If such
contracts. Among the targets of the SCS is a more exten- transparency cannot be ensured, the scoring system leaves
sive surveillance, rating and control of individual market room for further market entry barriers, on top of existing
players. The Corporate SCS will be implemented gradually market entry restrictions and regulations.
and in operation by the end of 2020. The system enables
the Chinese government to efficiently monitor companies A year ahead of the implementation, 68% of the surveyed
and individuals and – in the case of non-compliance with the companies do not consider themselves to be sufficiently
law – to impose sanctions. informed about the “Enterprise Credit Information Publicity
System”. There is high demand from German companies in
China for additional information about it (44%).
Fig. 32: Are you aware of your company’s records on the

Assessment
“Enterpriseon Credit
awareness of company’s
Information records
Publicity on the
System”
“Enterprise
(n=465) Credit Information Publicity System”
Yes, we are
suffiently aware
24
32
No, but we are
actively looking for
information
No, not relevant to

our company at the
44 moment
Figures in percent

At 35%, companies in the Business Services sector are the most sufficiently aware sector in terms of SCS, whereas at
61% of participants, the Healthcare Products industry is the one most actively seeking more information about it.
Fig. 33: Industry-related assessment: Are you aware of your company’s records on the “Enterprise Credit Information
Publicity
Assessment System”?
on awareness of the “Enterprise Credit Information Publicity System” — with an industry focus
35
32
Yes, we are sufficiently
29
aware
25
28
35
40
No, but we are actively
looking for information 51
56
61
30
No, not relevant for 28
our company at the 20
moment
19
11
0 20 40 60 80
Business Services Automotive Machinery / IT / Telecommunications Healtcare Products

Industrial Equipment
Figures in percent
Similar results were found regarding German companies` So far, 70% of the surveyed companies consider them-
familiarity of the rating score and their awareness of their selves unprepared for the SCS due to lack of information
own score, where 59% of the surveyed companies stated or other reasons, such as preparation/application difficul-
they are not familiar with this information. The surveyed ties and uncertainties vis-à-vis the rating system. This
companies also state that they first need to obtain respec- applies equally to all industries in the same way.
tive information or that they are uncertain of where they
can obtain relevant information.
Familiarity of companies w. their rating results in the two

most advanced Social Credit System rating, the tax and
the customs authentication rating
Yes
41
No
59

Business Services Automotive Machinery / IT / Telecommunications Healtcare Products
Fig. 34: Are you also familiar with your company‘s rating Fig. 35: Is your company actively preparing for the Social
results in the two most advanced Social Credit System Credit System and its ratings? (n=436)
ratings, the tax and the customs authentication
Familiarity of companies w. their rating results in the two
ratings? (n=339)
most advanced Social Credit System rating, the tax and Active preparation of company in the Social Credit System
the customs authentication rating and its sub-ratings
Yes
30
Yes
41
No
59
No
70
Figures in percent Figures in percent
Companies will have to deal with about 30 different These requirements will cover areas such as tax, customs
ratings categorised according to their performance in authentication, environmental protection, product quality,
sectors like environmental protection, tax and quality work safety, e-commerce and cybersecurity.
controls, which in total will be drawn from compliance
records based on roughly 300 requirements.

Innovation & Digitalization
Use of Technology
Robotics and Automation (with 36% in use today and 17% China today. 3D printing is consistently increasing in
expecting adoptation within 2 years), as well as the importance (18% of Germany companies using it today
Internet of Things (IoT) (with 21% in use today and 22% and 12% expecting adoption within 2 years). In compari-
expecting adoption within 2 years) are the most relevant son, the use of “autonomous vehicles/driving” and “smart
topics around digitalization for German companies in cities” lags behind.
Company’s
Fig. usage
36: What of digitial
applies to yourinnovations
company in China regarding the following digital innovations? (n=468)
Robotics/automation 36 17 10 29 8
Internet of Things (IoT) 21 22 16 30 11
3D printing 18 12 12 49 9
Autonomous vehicles/
8 10 13 57 12
driving
Smart cities 6 12 15 50 17
Drones 4 6 8 65 17
0 10 20 30 40 50 60 70 80 90 100
In use today Expected adoption in 1–2 years Expected adoption in 3–5 years Not planned yet / not applicable I don’t know
Figures in percent
Different degrees of usage are prevalent in different industries. 71% of IT/Telecommunication companies use the
Internet of Things (IoT), 65% of companies in the Automotive industry use robotics and automation in their products,
also roughly 1/3 of the Automotive companies surveyed use 3D printing.
Fig. 37: Industry-related assessment: What applies to your company in China regarding the following digital
innovations?
Internet
Use of thingsof Things
of Internet
IT / Telecommunictaions 71 18 6 6
Automotive 22 22 20 24 12
Machinery /
20 24 22 26 8
Business Services 19 21 10 43 7
Healthcare Products 17 39 17 22 6
0 10 20 30 40 50 60 70 80 90 100
Figures in percent
3D Printing
innovations?
Robotics/automation
Use of Robotics
Machinery /
36 21 16 22 5
IT / Telecommunictaions
Internet of things 31 25 6 31 6
Business Services 17 10 7 60 7
0 10 20 30 40 50 60 70 80 90 100
Machinery /
20 24 22 26 8
Figures in percent
PleaseBusiness Servicesfrom 100 percent are due19
note: Deviations to rounding differences 21 10 43 7
0 10 20 30 40 50 60 70 80 90 100
innovations?
3D Printing
Use of 3D printing
Machinery /
17 15 15 45 7
Business Services 5 5 85 5
0 10 20 30 40 50 60 70 80 90 100
Figures in percent

43% of the companies surveyed state “finding skilled tions” (37%) and “slow cross-border internet speed”
employees” to be a challenge facing them in terms of (35%) as the next two most prevalent challenges.
digital innovations, followed by “internet access restric-
Fig. 40: Which challenges does your company in China experience with regards to digital innovation? (n=461)
Challenges with regards to digital innovations (percentage of responents)
Finding skilled employees 43
Challenges with regards to digital innovations (percentage of responents)

Internet access restrictions 37
Finding skilled
Slow cross-border employees
internet speed 35 43
Internet access /restrictions

Data security IP leakage 32 37
SlowSignificant
cross-border internet speed
investment needs 26 35
Data security / IP leakage

New competitors 25 32
Significant
Data investment
localization needs
requirements 20 26
New competitors
None 14 25
Data localization requirements 0 10 20 20 30 40 50

Figures in percent
None 14
0 10 20 30 40 50
Between 11% and 16% of the respondents believe they surveyed companies seem to be equal to (roughly 1/3) or
are ahead or far ahead of their German headquarters in behind (roughly 1/4) the German parent companies on
terms of the three digitalization issues; “big data”, these topics.
“machine learning” and “predictive analytics”. Most of the
Comparison to parent company in the following digital processes Grafik sieht in Excel anders au
bzw ist dort unvollständig
Fig. 41: When comparing to your parent company, do you consider yourself ahead or behind in applying digitali-
zation processes 3
Big data like...? 13
(n= 461) 38 24 9 15
Comparison to parent company in the following digital processes Grafik sieht in Excel anders au
Machine learning bzw ist dort unvollständig
2 9 34 27 6 21
Predictive analytics 2 11 34 28 7 18
Big data 3 13 38 24 9 15
0 10 20 30 40 50 60 70 80 90 100
Machine learning 2 9 34 27 6 21
Far ahead Ahead Equal Behind Far behind I don’t know
Predictive analytics 2 11 34 28 7 18
0 10 20 30 40 50 60 70 80 90 100
Far ahead Ahead Equal Behind Far behind I don’t know
Figures in percent

Collaboration
According to the findings of this survey, German compa- collaboration with startups, universities or research
nies report to notice various potential sources of business institutes. Approx. 1 of 2 companies are not collaborating
opportunity emerging in the Chinese market (see pgs. with startups, research institutes or universities in any
20 – 21). There is room for further improvement regarding manner at all.
Fig. 42: Are you collaborating with startups, research institutes and/or as universities in China?
If you do, how do you rate your interaction and collaboration? (n=464) Grafik sieht in Excel anders aus
Degree of interaction and collaboration with startups and research institutes
Collaboration with startups 5 15 14 1 64

1
Collaboration with research institutes 6 17 21 2 54
1
Collaboration with universities 6 21 21 3 47
0 10 20 30 40 50 60 70 80 90 100
Expanding Somewhat Remain unchanged Decrease Exiting all No collaboration

expanding interaction activities
Figures in percent
Collaboration with startups in China — by industry Collaboration with Research Institutes in China — by industry
IT/Telecommunication
(in percent)
companies seem to be front-run- This contrasts with the Machinery/Industrial Equipment
(in percent)
ners in collaborations with startups. Moreover, Healthcare and Business Services sectors, who indicate hardly any
Products firms show increasing collaboration with form of collaboration with Startups or research institutes.
research institutes and universities in China.
47 56
6 11
IT / Telecommunictaions Healthcare Products
6 0
41 33
33 30
Healthcare Products 0 IT / Telecommunictaions 24
0 6
67 41
33 23
17 28
Business Services Automotive
2 2
48 45
22 21
16 Machinery / 15
Automotive
0 Industrial Equipment 2
61 61
12 19
Machinery / 11 22
Business Services
2 5
74 54
0 10 20 30 40 50 60 70 80German Business in China 0– Business

10 20Confidence
30 40Survey
50 2019 / 20
60 70 45
80
Increasing Remain unchanged Increasing Remain unchanged
Decrease No collaboration Decrease No collaboration

Competitive Situation
Competition with Chinese companies has increased sharply In 2019, 47% of the surveyed companies believe that
in recent years and remains a challenging issue for the Chinese competitors can become innovation leaders in their
surveyed companies. Over the past years, domestic industry within the next five years, which is up from 36% of
Chinese companies were able to keep up with technological respondents in 2018. Moreover, 34% believe that it is
innovations and to reduce a gap to their foreign competitors unlikely or very unlikely that competitors will make this
that existed for years. move, which is down from 44% of respondents in 2018.
Fig. 43: Do you think Chinese competitors can become innovation leaders in your industry within the next five years?
(n=507)
Industry specification for industry development
100
10 11 10 9
90
80 25
23
34
36
70
60
20
25
50
21
19
40
30 35
27
22
20 28
10
15 14 12
7
0
2016 2017 2018 2019
Very likely Likely Neutral Unlikely Very unlikely
Figures in percent

According to the findings of this survey, Chinese private- From SOEs it has increased by 5%-points from 2018 to 21%
ly-owned enterprises (POEs) are much stronger competitors in 2019. In contrast, in 2019, 27% of the surveyed compa-
for German companies than state-owned enterprises nies believe that they are not experiencing competition or
(SOEs). Furthermore, competition from POEs is increasing experiencing decreased competition from SOEs, whereas
for 56% of the surveyed companies, up from 50% in 2018. just 7% feel the same about POEs.
German
Fig. company's
44: Please level the
evaluate of competance vs.your
competition Chinese competitors
company is facing from Chinese companies. (n=460)
56
24
2019 12
Privately-owned enterprises
50
28
2018 17
21
25
2019 23
State-owned enterprises
20
16
21
2018 37
25
0 10 20 30 40 50 60
Increasing Unchanged Unchanged

(remain at high level) (remain at low level)
Decreasing No Chinese competitors
Figures in percent

Belt and Road Initiative (BRI)
The BRI is a major project initiated by China to establish an For many nations along the “New Silk Road”, the initiative is
intercontinental infrastructure network between Europe, a vehicle that supports national development goals. Despite
Africa, Asia and China that aims to open market access and business opportunities and promising projects, there are
investment opportunities and promote trade and coopera- also challenges, arising in large part from a combination of
tion with the European Union. The expansion of infrastruc- risks inherent to infrastructure projects, as well as political,
ture via the BRI initiative will change the economic situation social and economic risks in host markets.
of the countries affected and will impact global trade flows.
China cooperates strongly with 71 countries that make up For 33% of the surveyed German companies, the Belt and
65% of the world‘s population (including China). Since the Road Initiative is not a significant opportunity at this point in
initiative was launched in 2013, investment and construction time, whereas 29% believe it to be significant or somewhat
contracts worth USD 489 billion have been realized in these significant. It is only ranked number 10 of the business
countries. opportunities (see pg. 21). It is clear that to date the poten-
tial of BRI has yet to fully materialize.
Fig. 45: In what way do you view the Belt and Road Initiative as an opportunity for your company’s China business?
(n=512)
Respondents viewing BRI as an opportunity for their company's China business
4
Insignificant opportunity 33
Neutral 32
Siginificant opportunity 29
I don’t know 6
0 5 10 15 20 25 30 35
Figures in percent
Opportunities for industries in terms of Belt and Road initiative

0
It is Business Services, Machinery/Industrial Equipment and the IT/Telecommunications industry that see significant
opportunities in BRI projects.
Fig. 46: Industry-related assessment: Do you see Belt and Road initiative as an opportunity for your company’s
China business?
Business Services 38 33 29
Machinery / 31 39 27
IT / Telecommunications 24 35 41
Automotive 12 45 37
Healthcare Products 41 59
0 10 20 30 40 50 60 70 80 90 100
Significant Neutral Insignificant
Figures in percent
The Business Confidence Survey conducted in 2018 shows model is of low relevance to the Initiative (72%). 22% of the
that more than two-thirds of the surveyed companies were respondents cited a lack of suitable projects and insufficient
not engaged with Chinese business partners in relation to availability of information (16%) as reasons for not engaging
the BRI. The most apparent reason for this is the perception in BRI-related business.
amongst German companies that their industry or business

06 Profile of Surveyed Companies
The German Chamber of Commerce in China numbers Company Location in Mainland China
2,300 member companies, representing roughly 50% of all
German companies operating in China. At 47%, the largest amount of the responding companies
are located in Shanghai with Beijing next at 13%. In 2018,
This year’s online survey was conducted from 29 July to 12 11% of respondents stated that their company was located
September 2019 and covered all member companies in in Beijing and 43% in Shanghai. This slight change neverthe-
China. As the 2019 company profile of the surveyed compa- less forms a strongly representative picture of the members
nies is very similar to that of the prior year, the results from of the German Chamber of Commerce in China.
both years can be reliably compared, which is also the case
with respect to industries and other variables relevant in The majority of German businesses in China are located on
both surveys. Furthermore, the 526 respondents surveyed the periphery of the country in coastal areas. They are
in 2019 marks a record high and well exceeds the 423 particularly concentrated in the main economic clusters of
respondents from 2018. the Yangtze Delta (East), the Bohai Economic Rim (North)
and the Pearl River Delta (South). Relatively few companies
are located in the interior of the country.
Other North: 5%
Beijing: 13%
Tianjin: 6%
Jiangsu: 15%
Other East: 4%
Other Southwest: 2% Shanghai: 47%
Guangdong: 8%

Surveyed German companies in China are mainly engaged companies operate in Business Services. The remaining
in industries such as Machinery/Industrial Equipment and 45% consist of companies from various industries ranging
Automotive – together totaling 46%. A further 9% of from Healthcare Products to IT/Telecommunications.
Fig. 47: Please specify the main industry of your company. (n=458)
Machinery/Industrial Equipment 28
Automotive 18
Business Services 9
Consumer Products/Services 4
Focus industry of the German company
Healthcare Products 4
Financial Services 4
Machinery/Industrial Equipment 28
IT/Telecommunications 4
Automotive 18
Electronics 4
Business Services 9
Chemicals 3
Consumer Products/Services 4
Logistics, Transportation and Distribution 3
Healthcare Products 4
Construction and Civil Engineering 3
Financial Services3
Plastic/Metal Products
4
IT/Telecommunications
Others 4 13
0 5 3 10 15 20 25 30
Chemicals
Figures in percent
Others 26
0 5 10their 15 operation
20 is 66%25 30
Small and medium-sized enterprises (SMEs) still consti- local of all surveyed companies.
tute the largest share of German companies in China. The Companies with more than 1,000 employees make up
share of companies employing up to 250 employees at 13%.
Fig. 48: Please indicate the number of employees working at your company‘s local operation. (n=459)
Number of employees at company's local operation, 2019
less than 50 employees 33
50 – 250 employees
33
250 – 1000 employees 20
1000 – 3000 employees

7
more than 3000 employees

6
0 5 10 15 20 25 30 35
Figures in percent

Legal status of the company in China
Others
9 4
4
6 Holding
Wholly Foreign-Owned
Most surveyed German companies (77%) inEnterprise
China are (WFOE)
characterizedas a Wholly Foreign-Owned Enterprise (WFOE),
followed by joint venture (9%), representative office (6%)
Representative and holding (4%).
Office
Legal status of the company in China
Fig. 49: Please indicate the legal status of your company in China. (n=459)
Joint Venture
77
Others
9 4
4
6 Holding
Wholly Foreign-Owned
Enterprise (WFOE)
Representative Office
Joint Venture
77
Figures in percent
Over half of the German companies surveyed (58%) manufacture goods in China.
Is your company manufacturing goods in China?
Fig. 50: Is your company manufacturing goods in China? (n=445)
No
42 Yes
58
Is your company manufacturing goods in China?
Figures in percent
No
42 Yes
58

07 Contacts
German Chamber of Commerce in China

The German Chamber of Commerce in China has currently more than 2,300 members in mainland China and is the official
member organization for German companies in China. By providing up to date market information and practical advice, the
German Chamber helps its members to succeed in China. It offers a platform for the Sino-German business community
and represents its members’ interests towards stakeholders including government bodies and the public.
German Chamber of Commerce in China | North China

Landmark Tower 2, Unit 0818
8 North Dongsanhuan Road
Chaoyang District, Beijing 100004
T +86 10-6539-6688
chamber@bj.china.ahk.de
German Chamber of Commerce in China | Shanghai

29/f Gopher Center
No. 757 Mengzi Road
Huangpu District, Shanghai 2000023
T +86 21 5081 2266
chamber@sh.china.ahk.de
German Chamber of Commerce in China | South & Southwest China

Room 1903, Leatop Plaza
32 Zhu Jiang East Road
Tianhe District, Guangzhou 510620
T +86 2087552353
chamber@gz.china.ahk.de
Lisa Fischbach
Director Media & Public Relations
T +86 10-6539-6670
fischbach.lisa@bj.china.ahk.de

KPMG AG Wirtschaftsprüfungsgesellschaft
KPMG is a network of professional firms with around 207,000 employees in 152 countries and territorries. In Germany,
KPMG is one of the leading auditing and advisory firms and has around 11,700 employees at 25 locations. Our services com-
prise Audit, Tax, Consulting and Deal Advisory. Legal services are provided by KPMG Law Rechtsanwaltsgesellschaft mbH.
For all relevant business corridors between Germany and foreign countries or regions, KPMG Germany has implemented
Country Practices. Each Country Practice consists of country experts who know the specifics and regulatory environment
of those markets, regularly work in those countries and advise German and international multinationals on a day-to-day
basis with their country- and corridor-related demands. The Country Practice China is one of the largest Country Practices
at KPMG in Germany.
KPMG in Germany
Andreas Glunz
Managing Partner International Business
T +49 211-475-7127
aglunz@kpmg.com
Jack Cheung
Partner, Head of Global China Practice in Germany
T +49 211-475-6688
JackCheung@kpmg.com
KPMG in China
Andreas Feege
Seconded Partner, Head of German Desk
T +86 10-8508-5000 ext 4455
a.feege@kpmg.com
Norbert Meyring
Partner, Head of Multinational Clients
T +86 21-2212-2707
norbert.meyring@kpmg.com

Published by: In cooperation with:
china.ahk.de www.kpmg.de
www.kpmg.de/socialmedia
While every effort has been made to provide accurate information in the preparation of this report no responsibility or liability is accepted for errors or omissions of fact or for any opinions expressed
herein. Opinions, projections and estimates are subject to change without notice. This report is for information purposes only. In no event shall the German Chamber of Commerce in China or their
employees be liable for any losses or other consequential, incidental, exemplary or special damages relating in whole or part to the use of information contained in this report.

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German Business in China

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Jens Hildebrandt Andreas Glunz

2 German Business in China – Business Confidence Survey 2019 / 20

01. Performance & Business Outlook 8

03. Reform Efforts & Business Challenges 24

04. US/China Trade Dispute – Reactions & Potential Consequences 32

05. Spotlight on Current Topics 38

06. Profile of Surveyed Companies 50

German Business in China – Business Confidence Survey 2019 / 20 3

Business Outlook Gloomy With Small Signs Of Hope

Investment Growth Needs Improved Market Access

4 German Business in China – Business Confidence Survey 2019 / 20

Trade Dispute Impacts Noticeably

German Business in China – Business Confidence Survey 2019 / 20 5

Performance & Business Outlook

Market Access & Investment

• Almost half of the companies (45%) acknowledge China’s commitment to further

Reform Efforts & Business Challenges

6 German Business in China – Business Confidence Survey 2019 / 20

Corporate Social Credit System

Innovation & Digitalization

• Approx. 1 of 2 companies are not collaborating with start-ups, research institutes or

Belt and Road Initiative (BRI)

German Business in China – Business Confidence Survey 2019 / 20 7

Overall Economic Development

German Business in China – Business Confidence Survey 2019 / 20 9

Worsening Unchanged Improving

10 German Business in China – Business Confidence Survey 2019 / 20

Worsening Unchanged Improving

German Business in China – Business Confidence Survey 2019 / 20 11

2017 2017 2018 2018 2019 2019

Not achieve Partly achieve Mostly achieve Achieve Exceed

12 German Business in China – Business Confidence Survey 2019 / 20

Investment Employment Profit Net sales

Substantial decrease Decrease (5 – 20 %) Similar/unchanged Increase (5 – 20 %) Substantial increase

Substantial decrease Decrease Similar/unchanged Increase Substantial increase I don’t know

14 German Business in China – Business Confidence Survey 2019 / 20

Global net sales Global profit Global investment

German Business in China – Business Confidence Survey 2019 / 20 15

2017 2018 2019

16 German Business in China – Business Confidence Survey 2019 / 20

Profit after tax Net sales

Automotive Machinery / Industrial Equipment IT / Telecommunications Healthcare Products Business Services

Profit after tax — by industry focus (in percent)

Almost half of the surveyed companies (45%) assess

German Business in China – Business Confidence Survey 2019 / 20 19

Difficulties in obtaining licenses, certifications or

Disproportionate bidding and tendering processes 24

Lack of participation in the development of

Insufficient lead time 13

Direct market access restrictions (e.g. sector is

Potential Sources of Business Opportunities

20 German Business in China – Business Confidence Survey 2019 / 20

Sourcing and supply chain 59 26 12 3

Significant Neutral Insignificant I don’t know

Very likely to increse

German Business in China – Business Confidence Survey 2019 / 20 21

Investment Planning in China

2019 (forecast) 2018 (forecast)

Areas of planned investments in the next two years (in percent)

2019 (forecast) 2018 (forecast)

Figures in percent. Please note: Multiple answers possible

Reasons for not Investing