Please don’t cry now. The German mechanical and plant engineering industry is no longer the world champion in exports, it is now China. In 2020, the People’s Republic accounted for almost a sixth of the total global foreign trade volume in such goods. It is further evidence, if any more was needed, of China’s economic power. Germany is only in second place, but what does that mean: If you put the export figures in relation to the population of the two countries, that is still a very good place.
Mentally, the rest of the world had a long time to prepare for the rise of China. The ascent was systematically planned politically. As early as 2015, the government in Beijing adopted its “Made in China 2025” strategy, a plan for building an industrial power. The corona pandemic has contributed to the People’s Republic becoming the world’s export champion as early as 2020. The epidemic started there, but the country has recovered quickly and vigorously while other countries were still suffering. It cannot be ruled out that Germany will oust China from the top spot again next year, but that would only be temporary. In the foreseeable future, the People’s Republic will permanently establish itself at the top. Politics and business have to get used to dealing with it, and better than before.
Other nations have made a significant contribution to China’s rise to become the world’s export champion, because they have transferred technology and thus knowledge and relocated production there. There were and are many reasons for this: the sheer size of the new sales market, cheap production factors, even if this argument has lost much of its strength in recent years.
Goods that companies used to manufacture in their factories in Germany and other industrialized countries and exported to China are now being produced by the same companies in their factories in China – for the Chinese market and for export. A good tenth of the 3300 members of the industry association for mechanical and plant engineering (VDMA) produce in China. However, there are no figures on what proportion they make up of China’s total exports.
China appears to be on track to implement the 2025 plan. Technologically, the state has caught up a lot. On the world markets, especially for mass-produced goods such as construction and agricultural machinery or drive technology, China competes fiercely with suppliers from Germany, the USA, Japan and Italy.
There are ways to compete with China
It is extremely unfair competition because the People’s Republic promotes exports and does not adhere to the requirements of the Organization for Economic Cooperation and Development (OECD), which are intended to prevent a race for conditions. China doesn’t have to either because it is not an OECD member, but it could. An attempt to persuade China in international negotiations to follow the OECD rules is likely to be futile.
As China’s strength grows, the bargaining position of other countries and their organizations has dwindled. But the OECD could change its rules and thus support the export power of its member countries: State export subsidies preserve jobs at home.
German companies should respond more to the needs of markets in which China is strong and where simple, robust and inexpensive products are in demand. The development of such products is also an engineering skill. And buyers who have had good experiences with simple, inexpensive products and the associated service may remain loyal to the provider even if they can afford more.
It is time to significantly expand the catalog of criteria for choosing a location. The sheer size of the market is not enough if a state cares little about democratic values and fair working conditions. Such investments only strengthen autocrats and dictators. Sounds naive? Maybe. Perhaps it was naive to believe that investment and trade would transform China into a democratic state. It doesn’t look like that at the moment.