{"id":20904,"title":"China’s Economy Today: Effects on Germany","link":"https:\/\/bst-europe.eu\/de\/economy-security-trade\/chinas-economy-today-effects-on-germany\/","date":"23. November 2018","date_unix":1542972167,"date_modified_unix":1754486519,"date_iso":"2018-11-23T11:22:47+00:00","content":"

The role of China’s Economy Today for German key industries<\/h2>\n

In our mini-series on Global Value Chains (GVCs) we look how three German key industries \u2013 motor vehicles, chemicals and machinery \u2013 are part of complex international production networks.\u00a0It shows to what degree Germany is embedded in a network of international partners in which everyone specializes on what they are doing best. This week we focus on the role of China for German key industries. The rise of China\u2019s economy in the last two decades has been breathtaking. Starting from scratch, the country has become the 2nd largest economy in the world in terms of gross domestic product and accounts for 11.5 percent of world trade. When it comes to exports, China has even been the uncontested world champion for nearly a decade.<\/em><\/p>\n

However, mere trade volume does not tell the full story of how intertwined China’s economy today really is with many industrialized economies, such as Germany. To see the whole picture, we should look at the so-called global value chains (GVCs). GVCs represent the complex cross-border supply networks of companies, which are the result of increasing international labor division. For some of Germany\u2019s key industries, China is at the very heart of these GVCs and its importance is still increasing.<\/p>\n

China’s economy today: One of the top suppliers in three German key industries<\/h2>\n

Data for three German\u00a0key industries\u00a0<\/strong>\u2013 machinery and equipment, motor vehicles and chemicals \u2013 show that China’s economy today\u00a0<\/strong><\/i>is among the\u00a0top 10\u00a0<\/strong>supplier countries when considering foreign value added in 2014. This trend is most advanced within the supply chain of German machinery and equipment, where China contributes 9 percent of the total foreign value added and ranks 1st among individual supplier countries (figure 1). China\u2019s rise as a top supplier is remarkable, especially given the fact that, back in 2000, China\u2019s contribution to the supply chains was minor, with approximately 2 percent for all three key industries.<\/p>\n

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China\u2019s\u00a0crucial role <\/strong>in the supply chain of German industry is not only due to a recent increase in human work on Chinese soil but also a shift from simple, low value towards capital intensive and more complex processes. In 2000, China was already the single country contributing the most foreign human work\u00a0<\/strong>within the supply chain of the three German key industries.<\/p>\n

The rise of China’s economy today<\/h2>\n

Between 2000 and 2007 China further expanded its leadership position<\/strong>: in 2007 between 14 and 21 percent of all foreign working hours took place in China. In the following years, there was no further increase of China\u2019s proportional share of foreign working hours. However, China\u2019s contribution to foreign value added further increased between 2007 and 2014.<\/p>\n

Besides the increase of working hours itself, the increase in value added by China is derived from a major shift from primary processes such as mining and first products thereof towards complex intermediates and the associated R&D and other business services. This is in line with the explicit goal of the Chinese government to upgrade China\u2019s position <\/strong>in the GVCs: in the 21st century, China should leave behind its role as the \u201cfactory of the world\u201d and rather turn into the \u201cresearch lab of the world\u201d.<\/p>\n

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Outlook: China\u2019s upgrade in GVCs will intensify competition for Germany\u2019s industry<\/h2>\n

While Germany\u2019s industry has so far benefitted from China\u2019s position in GVCs, e.g. through cheap intermediates, this situation is about to change<\/strong>: As Chinese companies are reaching for the more profitable segments within GVCs, direct competition with German companies already occupying these segments increases. This does not necessarily threaten the very existence of German key industries, though. When new competitors emerge, incumbents can find new strategies to secure their place on the playing field, for example strengthening their competitive edge in complex technological niches.<\/p>\n

For Germany, there are two recommendations on how to handle this new situation:<\/p>\n