Reflection on US deals in China from German perspective

By Markus M. Hoffmann

For his “day of reckoning” with China, Donald Trump does not wait long. In Beijing, he praised President Xi Jinping as a "highly respected and powerful" statesman. Just a few hours after his departure, the US President is back on the offensive track against the world's second-largest economy. At the Asian-Pacific Economic Summit in Danang, Vietnam, the politician uses an aggressive speech to denounce unfair trade practices and leaves no doubt about which country he does mean.

With the words "God bless America", the US President says goodbye - and leaves the stage in Danang for Chinese President Xi Jinping. Although even if Xi´s speech only starts minutes after Trump´s presentation, the US President does not remain for the speech of his Chinese counterpart, instead he meets American Vietnam War Veterans in his Hotel at the same time.

All in all one of the indicators for this reaction might be the negative feedback Trump already got from the US & global media for the business deals his US CEO´s have signed in Beijing recently. The amount of 250 billion US Dollars sounds quite impressive but only a few agreements like the GE & the Airbus deal have the material to be an important part of the “Made in China 2025” strategy which is leading China into a new era of high-tech and innovation. Others, like the Qualcomm deal, already have been negotiated since years and hardly have kept the original targets from the US High-Tech firm. In the end of the day, most agreements or Letter of Intentions might have a better result for China then for the USA in long term. So there was a great show and China was indeed a very honest host to the US Administration with perfect hospitality and respect, but what could be seen in reality only the future will bring.

German Chancellor Angela Merkel talks with workers at a plant of BMW Brilliance Automotive in Shengyang, capital of northeast China's Liaoning Province, June 14, 2016.[Photo: Xinhua]

On the other hand Germany of course also has well recognized and worldwide known brands who are investing “big” in China. For example BMW has increased his sites in Dadong & Tiexi in the meantime to a production output of 450,000 cars per year and the revenue in 2017 has grown by 18% so that the partnership with the local joint venture was extended to 2028 by already creating 16,000 jobs as per today. But this is not the overall set-up of the more than 5,000 German companies in China. The so called “Mittelstand” (German mid-sized companies) had and has enormous impact on the technological development of China through the last years and is here for the long run. Up to 750 mechatronics companies have invested in China as of today and more important they have invested into the people and into the local environment. The trust level between Chinese & Germans has indeed reached a new level.

Another effect of this development is the fact that not only the machine export from Germany to China has grown strongly in recent years. In the first ten months of this year alone, this was an increase of more than 25 percent. Conversely, China has meanwhile become the most important machine supplier for Germany. From January to October 2017, capital goods imports from China increased by more than 10 percent to a total of 4.3 billion euros compared to the previous year. So it is good and important to see, that machine trade is not a one-way street.

The high level of apprenticeship programs in Germany are also well-known in China and receive great appreciation. In the context of the further digitization of the industry and the implementation of the objectives set out in the "Made in China 2025" plan, it became clear that qualification is a key topic for the future. Also in this field, a great cooperation between China and Germany is visible. Both economies can learn from each other. When it comes to speed and time to market set-ups it is clearly China, who gives the global pace. Almost no other country in this world has changed so dramatically and straight forward as China has done through the last couple of years. German companies quite often still have to learn to handle this speed as they are used to project-initiation stages and never-ending discussions until they even kick off a new product. During the same timeslot, Chinese companies almost already have released a Beta Version of the product.

Finally it always must be cooperation between two partners but still act in the interest of each party. Nice words and big deals are meaningless if they did not get filled with honesty and trust. I really hope that these US companies which have participated during the US state visit will bring added value to China because only then it can be a real win-win situation for both sides. Germany on the other hand still has to learn a lot about how to make business in China but I have the feeling that we are on a good and maybe better way than the USA. Even if the spot lights of the stage are not as shiny as they have been currently in Beijing but if the final result is profit and success for both partners, it is worth to remain in the shadow.

 (Markus M. Hoffmann is an influencer & expert on Industrial Business Development between China & Germany)