Chinese companies want to pass the "German test"

The Chinese government has been promoting investments abroad for more than a decade. A program called "Zouchuqu", Going out, supports Chinese companies in their expansion plans overseas. Liu Liqun from the prestigious Chinese Academy of Social Sciences says this is an integral part of Beijing's reform policy:

"The Chinese government regards the policy of reform and opening-up as a bilateral thing. It doesn't only want foreign companies to invest in China, but also Chinese companies to gain a foothold in overseas markets."

Awash with money

Liu points out that with China's quick recovery from the global financial crisis, the stronger yuan and gigantic foreign exchange holdings, China has gained self-confidence. It finds it easier to implement its "Going-out" policy, for example by buying up companies that got into trouble due to the crisis. In 1999, China spent 48 million euros on buying foreign companies; a decade later this figure had grown 500-fold.

In Frankfurt, lawyer Huang Qun advises Chinese companies on investing in Germany. He says a first wave of Chinese companies came 25 years ago. They were mostly trading companies who settled in Hamburg. In the 1990s, manufacturing companies followed. Meanwhile, a third wave has begun: "At this stage, Chinese firms come to acquire know-how and technology by taking over German companies."

His colleague Ma Zhenzhou, who is based in Duesseldorf, says many Chinese companies especially from the machinery and metal-processing sector are currently moving to Germany. Ma says there are no reliable figures as to the amount of money they bring, but he estimates the yearly investments surpass 100 million euros.

"Even in China, these investors have actually realized that the old strategy of being the workshop of the world doesn't work any longer. They are looking to high-value products and high-end markets. And they believe, if you can pass the test in Germany, you can make it anywhere in the world."

Difficult start for many

German cities and regions are trying to woo Chinese investors and offer them support. But many have difficulties entering the market, says lawyer Ma Zhenzhou. "In the beginning many are naive. Some Chinese companies don't appreciate the importance of seeking precise and comprehensive legal advice beforehand. Germany is a difficult country for investors, who face lots of obstacles and red tape."

Ma says that Chinese firms lack internationally experienced managers who can adapt to a foreign business environment. But sometimes, their problems already begin at the border, adds Petra Wassner, head of the state-run investment promotion agency in North Rhine-Westphalia, NRW Invest: "The biggest challenge is getting the residence permits for essential staff from China during the initial stages."

Yet despite all the difficulties, Chinese companies continue to look abroad. With the euro having lost more than 10 percent against the Chinese Yuan of late, it's a great opportunity to go for the "German test".

Author: Yan Jun / tb
Editor: Grahame Lucas