Investing in Germany offers the opportunity of drawing on technological know-how

Last year China realized its goal of maintaining annual average economic growth of 7.8 percent with its higher-than-expected 7.9 percent economic growth in the fourth quarter, and industrial production growth of about 10 percent, a sign that the economy is back on track.

Meanwhile, export-oriented industries, which account for nearly a third of economic activity, have been having a hard time, buffeted by the winds of the euro crisis and the US economic slowdown. Mired in troubles, the Europeans and Americans have reduced their demand for goods made in China.

As the export sector ails, many Chinese economists have been looking at new ways by which the country can grow, and the government has come up with the idea of "quality growth".

So what should China do to find new ways of doing business with developed Western countries?

China-EU economic ties go back a long way, from European investment in China early on, and gradually China investing heavily in Europe.

Right now, China needs to improve its technological know-how by investing in Europe. Even though Germany remains Europe's economic locomotive, it has been dragged down by the eurozone's sovereign debt crisis, yet Germany maintains a strong base of industrial technology that can serve it well in generating new business opportunities.

Reports by Global Location Trends in 2011 said that despite global investment shrinking 8 percent, investment by multinationals in Germany grew rapidly. So Germany jumped from 15th to the eighth in world rankings as an investment destination, creating 26,000 new jobs for itself, an increase of 77 percent on 2010. The German government's policy of encouraging foreign investment in this period is partly responsible for that.

The international environment has created opportunities for Chinese enterprises to grow wings and go abroad, but the country's economic transformation faces huge challenges. How it can transform itself from being the "world's factory" to being a nation in which science and technology-based industry leads the way? This has been a matter of widespread conjecture.

China needs to give top priority to drawing on Germany's advanced technology to elevate the country's industrial technology to new levels. Germany has the world's most advanced technology in machinery manufacturing, electronics, and medicine, and China must find a way to draw on this, appropriate to its own needs.

There is ample evidence that this can be done, the cases of Sany and Huawei springing instantly to mind. The former has successfully set up factories in Germany and the latter has turned in a solid performance in the country.

Given the absence of places in which domestic investment can profitably be parked, some are casting their eyes over foreign investment opportunities. For example, some time ago, part of China's foreign exchange reserves was invested in the German automotive sector. But Chinese enterprises still have a long way to go in gaining expertise in localizing their products and services, something that can improve the chances of success.

In addition, because of the sovereign debt crisis, some southern European countries, including Italy, Spain, Portugal, and Greece, have begun privatizing state-owned enterprises to raise revenue, which presents a multitude of investment opportunities to China. These include shipbuilding, wine, wind power, solar energy and other new-energy industries. In grabbing such opportunities China would not only be developing new capital growth points but also taking part in the privatization of advanced technology industries, the aim being to improve the technical capacity of Chinese enterprises.

Europe's economic woes are reflected in its automotive consumer market. For example, purchases of luxury cars fell in Germany last year, but in China the picture could not have been more different, the country being the largest destination for German premium cars for the first time. In China, BMW, Audi, Mercedes-Benz and Porsche sold nearly 1 million vehicles, more than in Germany and the United States. Since 2005, sales of German luxury cars have grown an average 37 percent a year. It is clear that these high-end automotive manufacturers have their hopes pinned on more growth in Asia, especially in China.

Since Western investors place so much confidence in China, the country, through joint ventures and the like, should be looking at how to maximize the use of technology and improve labor efficiency. For example, in the past few years Mercedes-Benz has shortened the time it takes to make a car from 60 hours to 40 hours.

The European crisis reduced the amount of investment in China last year, with foreign direct investment falling 3.7 percent, the first time it has fallen since 2009. The downturn in Europe is obviously the main reason for this fall, but the fierce competition that some foreign-funded enterprises have met in China is also a factor.

Two years ago Metro Group of Germany brought its electrical retailer Media Markt to China. But after a two-year test phase it beat a retreat in the face of fierce competition from local electrical retailers, closing its seven branches in the country.

Foreign companies have thus realized that their former privileged position no longer exists. How to create a new business model to adapt to the Chinese market and increase their competitiveness in the local market are questions they now have to ponder.

China's new economic transition plans have also attracted the attention of foreign investors. For example, Germany is a leader in wind and solar energy, but the federal government has narrowed its support for renewable energy.

In countries like China where energy use is high, there is now heavy demand for new-energy industries. Wind and solar industries are expanding, and there is no doubt that they have enormous appeal to Europe, particularly Germany.

The author is a professor at the Chinese-German College at Tong Ji University in Shanghai. The views do not necessarily reflect those of China Daily.

(China Daily 02/01/2013 page11)