The machine building industry market Chine: Both the best customer and the new competiton

Author Stéphane Itasse

China has changed the world in the last few years with its economic boom, even in the machine building industry: China has now become the world’s largest market for machines and it is also the world’s largest producer. For the German machine building industry a new competitor has emerged here.

In China’s industry Hightech is really finding its way because the government strives for sustainable growth
In China’s industry Hightech is really finding its way because the government strives for sustainable growth
(Photo: Siemens)

With an economic growth of 7.4 % in 2014 China has missed the target set by the government. The IMF also expects a growth of less than 7 % in 2015 in its latest economic outlook. “After decades of double-digit rates, the growth of China’s economy has normalized in the mid to high single-digit range. It is also noteworthy that the growth rate was stated under the targeted profit of 7.5%”, says Haiying Chen, Vice President at a consultancy called Struktur Management Partner (SMP).

Pollution control in China gives opportunity for the German machine building industry

Growth for the government in Beijing is not the same as growth: Even for the current five year plan till the end of 2015, sustainability is highly in the focus like never before. This trend should become more pronounced in the coming five year plan from 2016 to 2020. China wants to conserve its damaged environmental resources and concentrate more on the domestic economy. “With the rise in income there is a middle class with rapidly increasing purchasing power in China. The Chinese economy is increasingly oriented towards the domestic economy unlike many years back when it heavily targeted export, explains Chen.

There are opportunities for providers from Germany where environmental protection is involved. “Urbanization with all its technical requirements needs solutions and it needs to obtain energy from hydropower or wind energy. In all these areas the German machine building industry is well-positioned for the coming decade”, says Stephanie Heydolph, the head representative of VDMA in China.

German machine exports to China are on the rise again

The current development in the business with China is encouraging After two weak years 2012 and 2013, the exports of the German capital goods industry in the first half of 2014 increased in comparison to the previous year, reports VDMA. The success story of Germany’s machine building industry is long: When VDMA opened its liaison office in the summer of 2004 in Beijing, the bilateral trade in machine building industry totalled to about 70 billion Renminbi Yuan (RMB), in 2013 it was 166 billion RMB. Currently over 600 VDMA-member companies are active in China under their own names:

However, export is just one side of the business in China of the German machine building industry. From 2004 to 2012 the direct investments of the German machine building and plant construction industry increased from 5.7 billion RMB to almost 40 billion RMB. “Thus after USA, China is the second most important foreign location in the world today”, explains VDMA president Reinhold Festge.

In the medium market segment the machine building market in China is crucial

Nevertheless, the Chinese competition never sleeps. A study by the impulse foundation of VDMA has found out that the manufacturers are catching up especially in the medium market segment. Therefore the Chinese realistically assessed the technical gap to the German machine building industry. However in the growing middle market segment and in service they have a stronger position and that too not just in China. This is the core of their internationalization strategy. For the German machine building industry the findings mean that despite the existing technological and quality advantages the individual creation strategies in the China concept must be reviewed. The investigation revealed that the biggest potential for the German machine building industry lies in the middle segment in China. “German companies must intensively direct their offers to this segment. It will take courage to be “Good enough”, explains Festge.

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