"The Chinese mechanical engineering industry is currently experiencing a new wave of 'going global', characterized by higher quality and technologically advanced products at a comparatively low price," explains VDMA President Karl Haeusgen. "And the weakening demand in the domestic market is an additional driver for the new wave of internationalization of Chinese companies." With the help of industrial policy support, the Chinese mechanical engineering industry is becoming an unpleasant competitor for German and European companies. According to a new study conducted by the China research institute Sinolytics on behalf of the VDMA, 61% of the 500 companies surveyed forecast that they will only have an average or even poor competitive situation in five years' time, compared to 37% of companies at present. In addition, China is pursuing an expansive free trade policy that now covers 21 countries and offers Chinese companies advantageous trade and investment conditions in important third markets, according to the study "China Going Global: Goals, Measures, Counter-Strategies".

China's strategies and subsidies

However, European policymakers are also called upon to protect the EU internal market from distortions of competition from China. Measures should be implemented that are in line with the rules of the World Trade Organization (WTO). "The EU can help to create suitable framework conditions in which German and European mechanical engineering can diversify. To this end, further free trade agreements must be concluded with partner countries in Asia and the Mercosur agreement must finally be implemented," says Haeusgen. Special mechanisms must be put in place for products from China that could threaten "national security" and fair competitive conditions must be ensured on the EU internal market.

Improving export controls towards China

The VDMA is calling on German politicians to improve export controls towards China. The existing regulations are no longer suited to the current strategic challenges posed by China. Some export restrictions towards China no longer make sense, while there are clear gaps elsewhere. "Currently, the German government is largely acting on a case-by-case basis, which leads to unreasonably long export license terms. A new export control strategy towards China is urgently needed," warns the VDMA President.

The German government's market development activities could also be improved. "China is irreplaceable for our industry in the short and medium term and exports to the country provide well-paid and highly qualified jobs in Germany," warns the VDMA President. German policy can also use its funding instruments to help open up new sales markets outside of China. "For example, we finally need a functioning export credit insurance system for small order values. Our companies need to diversify their business to strengthen their resilience," summarizes Haeusgen.

You can download the study here: