Are German Firms Dependent on Chinese Revenue and Profits?

Investment and Trade with China: Examining Corporate Germany’s Dependency on Chinese Profits

Introduction

In this report, we will analyze the assertion that Corporate Germany is dependent on profits from China. We will examine the data and provide a comprehensive overview of the situation, emphasizing the importance of the Sustainable Development Goals (SDGs) throughout.

Germany’s Strategy on China

The recently released Strategy on China by the German government states that while they aim to preserve their economic ties with China, they also want to reduce dependency in critical sectors to mitigate associated risks.

German Companies in China

1. According to the German Economic Institute (IW), there are approximately 40,000 German companies registered abroad, with only 6% of them operating in China compared to 12% in the US.
2. In 2020, German companies generated 3.1 trillion euros in total annual revenues abroad, with nearly 11% coming from China and 17% from the United States.

Foreign Direct Investment (FDI) in China

• The stock of German FDI in China grew from 29 billion euros in 2010 to almost 90 billion euros in 2020.
• In the pandemic years, there was a significant acceleration in FDI growth, with a record 10 billion euros added in 2021 and another record of 11.5 billion euros invested in 2022.
• However, the concentration of European FDI in China is increasingly tilted towards large companies. In 2021, the top 10 investors accounted for 71% of all European FDI in China, with four German firms alone contributing 34%.

German FDI and Economic Dependence

• The total stock of German FDI rose by 8% in 2021 to over 1.5 trillion euros, with the largest receiver being the European Union (EU) and the United States receiving 29%.
• China’s share in German FDI remained relatively constant over the past decade, just below 7%.
• Germany has invested roughly the same amount in direct investment in China as in the UK.

Profits from German Equity Capital in China

• Profits from German equity capital in China have grown significantly, reaching over 15 billion euros in 2021.
• Between 2017 and 2021, profits from China accounted for 12-16% of all profits generated by German firms abroad, with more than half of these profits flowing back to Germany.

Trade Relations between China and Germany

• In 2021, the EU received 22.3% of all its imported goods from China, while Germany sourced 8.2% of its imported goods from China.
• China’s goods imports included a 10.6% share from the EU, with Germany accounting for 4.2% of the total.
• Germany pays one-fourth of every euro on Chinese goods entering the EU.

Value-Added Trade and Economic Exposure

• An analysis based on Trade-in-Value Database (TIVA) data shows that China’s share in Germany’s value-added imports is larger than its share in goods imports, highlighting the mutual importance of services and intermediary goods in trade.
• Adjusted data from 2018, accounting for higher interdependence, reveals that imported value added from China explains about 2.2% of total value creation in Germany, while value-added exports to China account for 2.7%.

Job Dependence on Trade with China

• In 2018, an estimated 1.1 million jobs in Germany were linked to export business to China, accounting for 2.4% of all German jobs.
• In contrast, Chinese jobs depending on exports to Germany were approximately 4.1 million, accounting for 0.5% of all Chinese jobs.

Conclusion

The analysis presented here challenges the notion that Corporate Germany is heavily dependent on profits from China. While there is significant economic engagement between the two countries, the data indicates that the level of dependence is not as high as often portrayed. It is crucial to consider the Sustainable Development Goals (SDGs) when evaluating economic relationships and making informed decisions.

This report was prepared by Simon Laube of the International Business Advisory team at Dezan Shira & Associates’ Shanghai office.

SDGs, Targets, and Indicators Analysis

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 8: Decent Work and Economic Growth
• SDG 9: Industry, Innovation, and Infrastructure
• SDG 17: Partnerships for the Goals

The issues highlighted in the article are related to economic ties, investment, and trade between Germany and China. These issues align with SDG 8, which focuses on promoting sustained, inclusive, and sustainable economic growth, full and productive employment, and decent work for all. Additionally, SDG 9, which aims to build resilient infrastructure, promote inclusive and sustainable industrialization, and foster innovation, is relevant to the discussion of German companies’ investments in China. Lastly, SDG 17, which emphasizes the importance of global partnerships for sustainable development, is connected to the article’s focus on the economic ties between Germany and China.

2. What specific targets under those SDGs can be identified based on the article’s content?

• SDG 8.1: Sustain per capita economic growth in accordance with national circumstances and, in particular, at least 7 percent gross domestic product growth per annum in the least developed countries
• SDG 8.2: Achieve higher levels of economic productivity through diversification, technological upgrading, and innovation
• SDG 9.1: Develop quality, reliable, sustainable, and resilient infrastructure, including regional and transborder infrastructure, to support economic development and human well-being
• SDG 17.11: Significantly increase the exports of developing countries, in particular with a view to doubling the least developed countries’ share of global exports by 2020

The article discusses the growth of German companies’ investments in China and the economic ties between the two countries. These align with the targets mentioned above, which focus on sustaining economic growth, promoting productivity, developing infrastructure, and increasing exports.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

• Annual revenues of German companies generated in China
• Stock of German foreign direct investment (FDI) in China
• Concentration of European FDI in China
• Stock of German FDI in various countries
• Profits from German equity capital in China
• Share of profits generated by German firms abroad accounted for by China
• Share of imported goods received by the EU and Germany from China
• Share of goods exports from the EU and Germany to China
• Share of value-added imports and exports between Germany and China
• Number of jobs linked to export business to China

The article mentions or implies several indicators that can be used to measure progress towards the identified targets. These indicators include financial indicators such as revenues, investments, and profits, as well as trade indicators such as imports, exports, and value-added trade. The number of jobs linked to export business to China is also mentioned as an indicator of economic exposure.

Table: SDGs, Targets, and Indicators

Behold! This splendid article springs forth from the wellspring of knowledge, shaped by a wondrous proprietary AI technology that delved into a vast ocean of data, illuminating the path towards the Sustainable Development Goals. Remember that all rights are reserved by SDG Investors LLC, empowering us to champion progress together.

Source: china-briefing.com

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