German firms plan to increase China investment in next 2 years despite ‘reality check’ in 2023

by Luna Sun at

Despite multiple headwinds and uncertainties dimming China’s appeal as an investment destination, most German businesses plan to stick around as intensifying competition raises the bar and the allure of the Chinese market is too big to walk away from, according to a new survey.

The 2023/24 Business Confidence Survey released on Wednesday by the German Chamber of Commerce in China showed 54 per cent of surveyed firms believe China’s investment appeal is declining in comparison to other markets.

But the survey also revealed an equal percentage are planning to increase their investments over the next two years despite de-risking calls, although the size of the investment was not surveyed.

And the report, which surveyed 566 member companies in October from industries including machinery and industrial equipment, automotive and business services, showed 91 per cent of companies plan to continue doing business in China.

Confidence among China’s foreign business community has been eroded by an increasingly tightened and volatile regulatory environment, and Beijing is seeking to restore trust as a lack of transparency and a weak economic recovery has led to an exodus of foreign capital.

Despite a 40 per cent rise in the number of newly established foreign-invested enterprises in 2023, which pushed the total to 53,766, yuan-denominated actual foreign capital used dropped by 8 per cent year on year to a three-year low of 1.1 trillion yuan (US$155 billion), according to the Ministry of Commerce.

“If we ask companies now, and I’ve just done this, the companies are, I would say, a little bit less optimistic than they were in October,” said Jens Hildebrandt, executive director of the North China branch of the German Chamber of Commerce in China.

The survey showed that German companies operating in China face a range of challenges, including increased competition from local companies, unequal market access, economic headwinds and geopolitical risks.

A third of respondents consider legal uncertainty as the most significant regulatory challenge.