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Asia

Sieren's China: Lamenting in the lap of luxury

European companies are less concerned about the recent economic downturn in China than it would appear at first glance, writes DW columnist Frank Sieren.

Closed for renovation should be written on China's borders. But that is not possible, since the most comprehensive renewal process in decades must be completed during ongoing operations. European companies in China have noticed this, cites the Business Confidence Survey 2015, which has collected information from nearly 550 European companies doing business in China.

The mood is much more pessimistic than in previous years. "Economic growth in China is declining, but costs are rising," is the brisk summary provided by Jörg Wuttke, president of the European Union Chamber of Commerce in China.

If you look at the situation more closely, it's not quite as melodramatic. Companies complain about sinking profits, but they're lamenting in luxury. (Pictured above: The Chinese Pateo concept car at the 2015 Shanghai Auto Salon).

Elsewhere, profits are scarcer: two thirds of the surveyed companies earn more in China than in other regions. That is why only six percent of companies are even considering going elsewhere. Where to? Russia faces serious difficulties and South America has grown only 0.4 percent this year. Brazil's economy is in the midst of a recession and Argentina stands again on the brink of bankruptcy.

No alternative to China

India is booming, but is a very underdeveloped and difficult market. The same holds true for the African continent. And the forecast for China's Asian neighbors is fair to cloudy. Given these conditions, only eight percent of the surveyed companies are pessimistic about China's growth in coming years, despite the crisis. And although uncertainty about the Chinese economy rises, not even a quarter of the companies have doubts about profits – but this attitude varies depending on the industry. Textile producers, for instance, have always had a harder time in China. Revenues for high-quality consumer goods and services, however, have increased by ten percent compared to the previous year.

Frank Sieren Kolumnist Handelsblatt Bestseller Autor China

DW columnist Frank Sieren

Nonetheless, the share of companies whose margins in China are higher than the global average has dropped below 30 percent for the first time: it's not a drastic reduction, just a decline of two percent compared to the previous year. But it is a clear signal that care-free times are over.

And yet only six percent of the interviewed companies have expressed that China's significance has waned in their global business strategies. Over half of the companies (56 percent) still plan to expand business in 2015^, despite declining growth. You cannot call that a crisis.

Slack economy, rising wages

Once again, all that does not indicate a lack of serious problems. European businesses' greatest concerns are the weak economy combined with rising wages, a very unpleasant linkage. But third place goes to a problem that has nothing to do with China: a weak global economy. It lessens demand in China but that is part of the new normal. America's upswing, on the other hand, is driven by loans. Meanwhile, the more than ever quarreling Europeans push down the euro's value artificially to remain competitive. Compared to that, China's "mere" six percent growth rate does not look so bad after all, especially since the Chinese success story is far from over. Another 600 million people in China are set to become part of the international consumer circle.

That doesn't change the fact that the next 30 years will prove to be more difficult for European companies compared to the past thirty. More and more Chinese competitors are emerging in different industries and they have to be taken seriously.

Chinese politics, too, have become more sophisticated when it comes to giving domestic companies an advantage while selling the appealing market for the highest possible price.

At the same time, it will become more difficult to produce goods cheaply in China. That is not necessarily a negative development when considering the magnitude of the market. And one or another reform will succeed. European companies have even praised president and party leader Xi Jinping: around 85 percent of the surveyed companies indicated that the new anti-corruption regulations meet their expectations, or even exceed them.

DW's columnist Frank Sieren has been living in Beijing for 20 years.

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