When Angela Merkel visited China this month, after a stop in Russia, she brought with her an array of German CEOs. Some signed deals during the trip, others started negotiations, but they all have one thing in common: they want a slice of the Chinese.With trade of over $100 billion between the two countries, Germany is China’s top European partner.
And the trend should continue: Chinese Commerce Minister Chen Deming recently stated that foreign direct investments were most welcome, as they would bring technology know-how to China. He said China would “open wider in the future”, probably responding to both BASF and Siemens’ leaders who openly criticised Chinese regulation and the lack of protection of intellectual rights.
But for leading German companies, especially in the car industry, Chinese demand has already boosted their latest quarterly results.
German companies have invested about €18 billion ($23.5 billion) directly into China so far. While less than the U.S., Hong Kong, or South Korea, Germany is by far the biggest European investor into the country.
The bulk of the trade between the two states has also increased dramatically. Last year, German trade with China went up to $47.6 billion (exports) and $72.2 billion (imports). Compared to Germany's trade in Russia, which decreased 30% last year, the trade with China has continued to grow.
While the car market in Germany isn't exactly booming, Volkswagen can count on its presence in China. The carmaker plans to increase its investments in the Asian market by €1.6 billion ($21.1 billion). That means it will invest up to $7.8 billion by 2012, including the construction two new plants in China.
Volkswagen can also rely on a well-anchored establishment in the Middle kingdom. The first major producer from the West to start its business in China in the 1980s, Volkswagen profits from increasing car orders in the region. Only this week, the company released booming second quarter results, its net profit jumping to $1.64 billion from $370 million a year earlier. Boosted by Chinese demand - unit sales rose 46% in China - and a weak euro, VW said it expects its operating profit and revenue to be 'significantly higher' than the past year.
Audi AG, a subsidiary of Volkswagen, had their H1 2010 profit nearly double over H1 2009. With $1.3 billion net profit, it's the best half-year result the company has ever had. The carmaker said it is expecting continuing growth from the Chinese market.
Audi is aiming for around 200,000 sales in China for 2010 and 300,000 in 2012, while warning that a price war between manufacturers might arise. As a comparison, Audi expects to sell about 100,000 cars in the U.S this year.
With a workforce of about 43,000 in China, Siemens' sales rose to $6.8 billion in 2009, while new orders amounted to $7.2 billion in the same year. Both these numbers were higher than in 2008. In the context of its latest quarterly result which beat analysts' estimates, Siemens said that sales in China increased by 14% during its last quarter and new orders by 35%. According to the New York Times, Siemens's profits, specifically from health-care equipment, were due to an increase in living standards in Asia.
During Angela Merkel's latest visit to China, Siemens CEO Peter Loescher signed a $3.5 billion deal with the Shanghai Electric Power Generation Equipment Co. to develop steam and gas turbines. Another sign of Siemens' growing importance in China: Loescher just became the Chairman of the Asia-Pacific Council of the German Economy.
Daimler just had quarterly earnings that beat all expectations, with revenue up 28% and unit sales of cars and commercial vehicles up 27%. These good results came partly from growing sales in China, as Daimler's total revenue in China went up a whoping 182% this year.
This month, Daimler signed a $943 million deal with Chinese company Beiqi Foton Motors for a truck joint venture that will increase the German carmaker's presence in emerging markets.
Airbus just recently started to build its presence in China. Its office in the country opened in 1990, and the first Airbus final assembly line opened in 2008. The centre is also the first ever to be located outside of Europe, showing the importance China in Airbus' international plans.
The first Airbus planes coming out of China were completed in June 2009. With booming Chinese demand in plane travel - the Chinese Civil Aviation Administration said in 2009 that it aims for 700 million trips in 2020 - Airbus forecasts orders to grow.
This month, Airbus' Chinese joint venture signed a contract with Spain-Based Alestis Aerospace for a package of A350s. And EADS, Airbus' mother company, just raised its guidance as it expects an increase in deliveries, as Airbus bagged 255 commitments worth $28 billion at the Farnborough show.
The chemical company BASF just tripled its quarterly profits, going from $452 million to $1.54 billion. Part of it is due to operations China and other parts of Asia. The company's sales in the Asian-Pacific area increased 60% when translated into euros.
Currently, the company has 16 joint ventures in China and 23 subsidiaries, making $5.3 billion in the country in 2009. And so BASF's Chairman Juergen Hambrecht felt secure enough to criticise the Chinese system to Prime Minister Wen Jiabao during Angela Merkel's recent visit. He complained that foreign companies would be asked to pass on technology to Chinese companies as a trade for market access.
His comments have had an impact: Hambrecht said recently that the regulatory problems that were delaying its multi-billion euro plastics plant project in Chongqing were almost over. He said they were in the 'final phase of consultation .'
The plant construction company SMS Group is hoping for increased orders from China to boost its profits that were stagnant after two difficult years due to lagging demand. Heinrich Weiss, SMS's leader, accompanied Angela Merkel on her recent visit to China for just that purpose.
This month, China Steel corporation ordered its sixth RH plant in a row from SMS. It's planned to be put into operation in the second quarter of 2012. SMS is supposed to engineer and deliver all plants components, build it and instruct the customer's personnel. The plant will produce ultra-low carbon steel for the automotive industry, as well as special steel for electrical sheets.
Retailing company Metro Group is planning on heavily expanding its presence in China. At the end of 2009, it signed a joint venture contract with Chinese company Foxconn Technology Group to start the entry of its consumer electronics stores, Mediamarkt, in the Chinese market.
The first stores are planned to open in Shanghai at the end of this year, as Metro supervises the operations with 75% of the shares in the joint venture. In the long term, the company plans on building at least 100 branches.
E.on just changed leader and Johannes Teyssen, the new CEO, announced it would change the company's structure and strategy fundamentally. He was the newbie amongst the business leaders accompanying the chancellor to China.
The energy company is mostly interested in the green energy market in China, a growing industry. Last year, it signed an agreement with Dongjiang Environmental to install recovery mechanism on Chinese landfills sites.