A bright future awaits Sino-German ties

Long-standing business relations expected to continue success as investment activity heats up between the two nations

In these times when it seems globalization is coming to an end, China, the Middle Kingdom, is opening up to the world and intends to intensify cooperation with German companies.

This is exactly the point where German companies and the mid-sized sector could get their chance.

In recent years, China has considerably developed its economic presence and has become an important support for the world economy. In 2015, China made a contribution of 25 percent to world economic growth. In 2016, its economy grew steadily, achieving a rate of 6.7 percent.

Forecasts say that China's exports will reach a volume of $8 trillion (6.9 trillion euros; ￡6.1 trillion) in the next five years. Foreign investment will reach about $750 billion.

Of course, German companies are the main focus of Chinese investors. German know-how and quality are very much appreciated by China.

In that regard, account should be taken of the so-called hidden champions. Private equity firms often have majority interest in companies, but they are increasingly having minority interest in German companies.

Companies in the fields of clean technology or Industry 4.0 are especially the focus of Chinese investors, although more companies from the tourism and leisure sectors also are. As Beijing prepares for the Winter Olympics in 2022, the media are giving more attention to winter sports. Companies related to winter sports are attractive investment targets for Chinese entrepreneurs. Additionally, in the past two years, China has made a huge investment in the football industry.

In 2016, Chinese invested about $13 billion in German companies - a thirteenfold increase compared with 2015. In global comparison, Chinese investors were behind only the United States with a volume of $247 billion, a year-on-year increase of 140 percent.

When buying a company, Chinese investors act wisely. They keep the existing management or make only some very modest changes. The due diligence (business scan) with the Chinese is less complicated than with European investors. Another big advantage is financial strength.

Certainly, German companies are skeptical about a Chinese investor. Through talks with Chinese entrepreneurs, private equity firms and public funds, I can rebut this reservation. First of all, the investors do not intend to restructure the company or even to retrieve know-how.

It is rather the question of protecting the sales channels in China. Often, Chinese investors are willing to make contracts above the market price. Therefore, they want to secure their investment against competition. The deal with the German company Kuka is a very good example for understanding Chinese investors. After the Kuka takeover through Midea, there was no change in the management. If one is to believe the Chinese private equity scene, there has been little change in the Augsburg-based robotics company itself. In general, this kind of deal does not provoke negative statements, either from Chinese or Germans.

Of course, one should not forget that a Chinese investor opens the enormous market into the Middle Kingdom. In Germany, the capital provision for German companies is not that good, and this is why Chinese capital could be of help in different directions.

For many years there has been a tight economic relationship between Germany and China. Siemens and China have a common history that goes back to 1872, when Siemens delivered the first pointer telegraph to China. Together with Volkswagen and Bosch, Siemens is among the biggest employers in China.

The German mid-sized sector is very bustling in China. Melchers, a German trading house, has been based in China for 150 years. Drees & Sommer, a real-estate service provider, is a consultant and partner for property projects in China.

These examples show the enormous variety of cooperation between the two countries.

Business relations between Germany and China are marked by a long and successful history. Certainly, they will have a bright future together.

The author is a former manager of Deutsche Bank. He is a consultant for investors and companies based in Germany and China. The views do not necessarily reflect those of China Daily.

(China Daily European Weekly 08/11/2017 page12)