German industry is losing more and more ground to China in the EU market

October 5, 2021 by No Comments

At the end of 2019, Wim van der Leegte, owner of industrial group VDL in Eindhoven, was dissatisfied when transporter Keolis ordered electric buses for the east of the Netherlands from the Chinese manufacturer BYD. And not at VDL. VDL is ‘European leader in the field of electrification’, says Van der Leegte in an opinion piece on its own website. “Chinese buses cost jobs in the Netherlands.”

To no avail: the order went to BYD (‘Build your Dreams’). It underlined that today’s China not only exports more cheap electronics, textiles and plastic toys, but also high-quality industrial products. The country has become a formidable competitor for the European manufacturing industry.

Germany, Europe’s export champion, is also losing ground to China in the EU’s domestic market, according to a study this week by the Institut der deutschen Wirtschaft (IW), a think tank funded by German employers. In the period 2000-2019, China managed to increase its share of exports to EU countries, while Germany’s share decreased. The Chinese exported more products to the EU that require complicated production processes, such as machines, cars and trucks, chemical products, systems technology and optical technology – precisely the type of products that German companies are traditionally strong in.

In 2000, China still accounted for 2.6 percent of the export of high-quality industrial goods to EU countries, in 2019 this was 9.7 percent. The German share also rose initially, from 17.5 percent in 2000 to 19 percent in 2005, but then fell to 17 percent. For most products, the decline only started in the 10s. This is despite the fact that the exchange rate of the euro developed favorably for the Germans after 2010: the euro became cheaper against the yuan, which made Chinese products relatively more expensive. „That makes the decline of the [Duitse] share even more relevant,” writes IW economist Jürgen Matthes in the report.

Until now, the perception in Germany was that Chinese exports to EU countries were mainly ‘complementary’ to the German ones, Matthes writes. To the extent that the Chinese made the same products as the Germans, the quality was regarded as ‘clearly less’, so that German companies would hardly experience any competition from China. This image is incorrect, Matthes writes.

Another misunderstanding

He also clears up another misunderstanding. In the past, China often exported products that were assembled there, but that (partly) consisted of foreign parts. But in the meantime, Chinese industrial products have increasingly become Chinese-made, the IW economist writes on the basis of data from the OECD think tank. The Chinese export success can therefore not simply be ‘relativized’, according to Matthes. Also read: Brussels wants to limit the influence of ‘cheat players’ on its own market – in other words: Chinese companies

It is not all that surprising, writes the economist, given the Chinese industrial policy. With the ‘Made in China 2025’ program, the Chinese Communist Party wants to transform the country from a low-wage export country into a high tech -industrienatie.

Another survey by the German government agency Germany Trade & Invest showed earlier this month that China is now the undisputed world leader in global machinery exports. In 2020, China already overtook Germany, but the difference was minimal. This year, Chinese exports will amount to USD 296 billion, Germany’s 249 billion.

Unfair competition?

The lightning-fast Chinese economic advance often raises questions about (un)fair competition, a theme that Matthes is also not afraid of. He mentions the “forced” transfer of technology from Western companies active in China, which China then deploys itself.

Europe is not only faced with competitive pressure from Chinese state capitalism, European companies also face many barriers to entry into the Chinese market. They are only increasing, Matthes writes in another article earlier this month.

The employers’ institute IW’s critical tone towards China fits in with the broader, increased unease in Europe about the lack of a ‘level playing field’ with China. The EU now sees China as systemic rival who deserves opposition. In that sense, Wim van der Leegte’s lament at the time about the missed order is not an isolated one.