German business grits teeth as Chinese economy slows

AFP - [email protected] • 17 Jan, 2016 Updated Sun 17 Jan 2016 17:54 CEST
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German companies are trying not to let themselves be spooked by the economic slowdown in China, even if they concede they are currently seeing a drop in demand for their products there.


"Of course we're experiencing a fall-off in demand in China at the moment," said Franz Hampel, head of Garant-Moebel, a furniture wholesaler.

"Our Chinese partners have become jumpy. Business has been good for them the past few years. But they're now asking themselves what the future will bring," Hampel said.

Employing a workforce of around 230 and active in around 20 countries, Garant-Moebel opened an office in Hong Kong two years ago where it employs a dozen people.

However, the strong fluctuations in the Chinese currency, the yuan, resulting from the country's recent financial woes, are leading Chinese furniture retailers to roll back business, Hampel said.

Garant-Moebel is not alone in watching economic developments in People's Republic with a wary eye.

"It seems obvious that the period of double-digit growth is behind us," said Jan-Christoph Block, head of international sales at drive systems specialist Getriebebau Nord in Bargteheide, north Germany.

"It's still possible to achieve growth, but it's become more difficult," he said.

Both companies can be seen as representative of the mostly family-owned small and medium-sized enterprises (SME) that form the backbone of the German economy and were quick to establish a foothold in China.

It is not just big companies like Volkswagen, BMW and BASF that are suffering from China's woes, the SMEs are feeling the pinch too.

- 'Enormous potential' -

China's economic growth is projected to slow to 6.7 percent in 2016 -- its lowest growth rate since 1990 -- from 6.9 percent in 2015, according to the latest forecasts from the World Bank.

The slowdown is worrying for German exporters, since China is their most important market after Europe and the United States.

In 2014, Germany exported a total €74 billion ($81 billion) worth of goods to China, not including the sales generated by companies' local subsidiaries in China.

According to the specialist consultancy firm EAC, some of the major players listed on the Frankfurt stock exchange generated combined turnover in China of €131 billion in 2014, an increase of nearly 10 percent over the previous year.

So it hardly comes as a surprise that the market turbulence in China has left its mark on Germany's blue-chip DAX 30 index, too. It has lost more then seven percent since January 1st.

Nevertheless, China's "enormous growth potential remains," said Block of Getriebebau Nord.

"Currently, more than 5,200 German companies are active in the People's Republic, employing a combined workforce of more than one million there," said Alexandra Voss, head of the German Chamber of Commerce in China.

"The economic slowdown in China will certainly not be painless. But the huge growth potential remains," Voss told AFP.

- Exaggerated fears -

A number of companies are hoping to benefit from the massive investment programme launched by Beijing to transform China from the world's biggest factory to the world's leading market place for innovation in services and technology. And the sectors covered by German companies were "particularly well placed" to take advantage of this, said Voss.

UniCredit economist Erik Nielsen also argued that "concerns over China are overdone."

China's "real economy leaves no particular reason to worry, at least not in the short term," Nielsen said.

"Recent indicators suggest economic activity has stabilised and, if anything, it has probably picked up in the last few months."

In November, German factory orders, a key measure of demand for goods in Europe's top economy, beat expectations, driven by rising demand both inside and outside Germany.

"It would be virtually impossible for German companies to report these numbers if China was slowing dramatically," Nielsen argued.

Despite China's current woes, Garant-Moebel chief Hampel remains confident.

"China remains an opportunity, thanks to rising incomes and the fact that more and more people there are able to buy consumer goods," he said.

"Our sales grew in 2015 and we expect them to do the same in 2016," he concluded.



AFP 2016/01/17 17:54

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