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German companies support “more robust” measures against China

By Jürgen Matthes
Ökonom Jürgen Matthes vom IW Köln über Konkurrenzdruck aus China
Economist Jürgen Matthes from IW Cologne

Europe’s companies are facing increasing competitive pressure from China. Just a glance at the development of export market shares since the turn of the millennium illustrates China’s enormous export success: it has immensely increased its share of world exports of goods and services from around three percent in 2000 to almost eleven percent in 2019, especially in the first decade. In parallel, the world export shares of other major industrialized countries already declined significantly in the 2000s.

Empirical studies, most of which relate to the period before 2010, indicate that Chinese and German exports were largely complementary rather than substitutive to each other during this period, meaning that the intensity of competition from China was kept within narrow limits from a German perspective. Looking to the future, however, the question arises as to whether China will not increasingly penetrate those sectors in which the German economy has its strengths. The Made in China 2025 strategy at least sets this as its goal. If this is the case, Germany’s global market share could come under much greater pressure in the current decade than has been the case to date.

A look at the development of China’s and Germany’s market shares of EU imports between 2000 and 2019 indeed shows that China’s exports are increasingly penetrating those sectors in which the German economy has its strengths. It can be seen that China’s shares have also increased very significantly here, while Germany’s shares have been declining since 2005. In the case of sophisticated industrial product groups, in which Germany is more specialised, the contrast is even more pronounced than in goods trade as a whole. Moreover, Chinese exports have shifted very clearly in the direction of sophisticated industrial goods.

Competitive pressure is becoming increasingly relevant

Against this backdrop, German companies from industry and industry-related services were surveyed in late autumn 2020 as part of the IW Future Panel on how strongly they already feel the competition from China, what causes they suspect behind this and how they view a more robust EU trade policy towards China. The results speak a very clear language.

German industrial companies even rate the relevance of competitive pressure from China over the next five years significantly higher than the relevance of protectionism. Almost one-third of the companies attach a rather high or very high significance to competition from Chinese companies. Among companies that export to China, this proportion is even over 42 percent.

At the same time, Chinese competitors are seen as efficient and innovative. But agreement on the relevance of competitive distortions is even greater. For example, around 71 percent of German companies that feel very high competitive pressure from China agreed with the question of whether subsidies give Chinese competitors a competitive advantage. Only a good 42 percent of these companies see their Chinese competitors as efficient and innovative.

Distortion of competition is clearly perceived

The companies surveyed also attach great importance to a more robust trade policy against Chinese distortions of competition in the coming years. For example, over 60 percent of the companies surveyed with a high export share consider a more robust approach to China to be very or somewhat important. It is noteworthy that the approval rates are similarly high or even somewhat higher among firms with exports to or production in China, even though these companies presumably have to fear countermeasures from China.

Among firms that feel very high competitive pressure from Chinese companies, even more than two out of three strongly support a more robust policy orientation. They are apparently convinced that this is necessary to counteract the competitive distortions caused by Chinese state subsidies, which are very clearly perceived by these companies, as shown.

The response of German companies can thus be interpreted as an urgent appeal to European and German economic policy to take measures to ensure fair competitive conditions (“level playing field”).

This article belongs in the context of the event series “Global China Conversations” of the Kiel Institute for the World Economy (IfW). On Thursday, 30.09.2021, Jürgen Matthes from the Institute of German Business and Dietmar Baetge, Professor at TH Wildau, will discuss the topic “China’s competition for Europe’s companies: Fair Competition or Illicit Subsidization?” China.Table is a media partner of the event series.

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