A tough 2016 is leading German companies to curtail plans for China, but not to leave the market. But an annual survey suggests they think the business climate will improve next year.
German companies are feeling less welcome in China and are cutting back on their expansion plans there. That's one of the findings of an annual business confidence survey published by the German Chamber of Commerce (AHK) in China.
The survey said the current economic situation in China was "the most difficult of recent years." Some 43 percent of respondents said the economic situation was worsening, up from 27 percent a year earlier. In contrast, only 23 percent said China's economy was improving.
But the outlook for 2017 improved to neutral, with both those expecting improvement and worsening tied at 29 percent.
Responses differed sharply according to companies' field of business, with machinery builders the most bearish for 2016, with 35 percent describing worsening circumstances, while the automotive sector was most upbeat, with 65 percent saying their situation was improving this year.
Growing domestic competition and a sharp increase in Chinese companies' ability to innovate were among the challenges faced. "More than a third of German companies believe that Chinese companies can become innovation leaders in their industry within the next five years," the survey said.
This comes with planned investment in new sites falling to a three-year low, as 37 percent of German companies "feel less welcome in China than before" - a figure rising to 42 percent in services.
The chamber said "growing legal uncertainty and unclear regulatory frameworks" were key challenges facing German companies. Internet speed and access, as well as protection of intellectual property were also major concerns.
Only 1 percent of companies said they planned to withdraw from the Chinese market in the next year, with 10 percent considering such a move.
The survey asked the companies about their preparations for Industry 4.0. Only 14 percent described intensive or partial use, but two-thirds were at least planning implementation, with the automotive sector furthest ahead.
The AHK represents about 2,500 German companies, or about half the number doing business in China. It has been conducting the survey since 2007. This year, it evaluated responses from 426 of them, with nearly half of responses coming from Shanghai.
The survey comes amid concern about a slowdown in the Chinese economy. The election of Donald Trump to the US presidency has raised fears of protectionist sentiment, while China has curbed capital outflows to defend its currency.