China companies see Germany as EU springboard

Updated: 2013-02-26 07:56

By Ding Qingfen (China Daily)

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Increasing numbers take advantage of the country's renowned factory know-how and global networks to gain wider access to the valuable Europearn market, as Ding Qingfen reports from Frankfurt, Germany

As two of the world's top manufacturers, China and Germany bear a strong resemblance to each other. But what is also important, is they complement each other well.

What cannot be ignored is that last year Chinese companies scooped a number of their German counterparts in gaining access to either know-how or the global sales network, and the trend looks set to continue.

Although some people may not be comfortable with China's ambitions, few should doubt the significance of the country's mergers and acquisitions (M&As) in rescuing companies in Europe's largest economy amid the European debt crisis as well as providing a boost to own economy.

"It's a noticeable trend that more Chinese companies cooperate with their German counterparts through M&As," said Wang Weidong, commercial consul-general at the Chinese Consulate in Frankfurt.

"They (both countries) need each other. We can say that China obtains the know-how from Germany, but for many German companies that have been struggling for capital and expansion in Asia, China is the best choice for partnership."

As Europe's largest economy and home to many small and medium-sized companies and manufacturers specializing in technological know-how, Germany is increasingly attractive to cash-rich Chinese enterprises.

As the largest direct investment by a Chinese company in a German firm, in August Chinese industrial manufacturer Shandong Heavy Industry Group took a 25 percent stake in Germany's Kion Group, the world's second-largest forklift maker, for 467 million euros ($619 million).

Four months later, Shandong Heavy said it had obtained the option to increase its stake in Kion Group to one-third, further tightening its grip on the company.

It's not only about Shandong Heavy. Last year, Chinese companies bought a number of their German rivals, in which they could gain access to technology, distribution and branding.

In early 2012, Changsha-based Sany Heavy Industry Co Ltd announced the spending of 360 million euros to buy German concrete pump maker Putzmeister, and in March last year, German car parts maker Kiekert said it was being bought by Chinese peer Hebei Lingyun.

In April, China's Xuzhou Construction Machinery Group agreed to buy a majority stake in privately held German concrete pump maker Schwing.

"We expect more Chinese purchases in Germany in the coming years, and the high-end manufacturing and processing industries and high-tech machinery industries will be highly targeted," said Wang.

"It's already a trend that is irreversible and unavoidable."

China is becoming an important investor in Germany. According to Germany Trade and Invest, 158 Chinese firms launched investment projects in Germany in 2011, compared to 110 from the United States, 91 from Switzerland and 53 from France.

A recent survey by PriceWaterhouseCoopers showed China's investment in the European Union by value in 2011 surpassed that from the European Union into China. And Germany, among the European countries, was the hottest spot for Chinese investors.

Chen Yongwu, general manager of Zoje Europe GmbH, said, "We expect the Chinese investment wave in Germany still to be there in the next five to 10 years."

As the world's leading industrial sewing machine maker, Zhejiang-based Zoje has completed two acquisitions deals in Germany, and is considering another new deal there.

Benefits for Germans

There have been a spate of Western reports saying that China will "gobble up" Europe through purchases, and doubts over Chinese companies cheating their European high-tech counterparts, but for Chinese companies, the arguments don't make any sense.

"For the German companies, joining hands with their Chinese peers is a must and a wise choice for a better future. And I believe many are realizing the importance," said Chen.

Amid eurozone debt woes, many German companies find a lack of capital is the biggest bottleneck to expansion and even survival, and China can provide the capital they need, said Chen.

At the same time, for the German manufacturers, the Asia-Pacific region led by China, the largest economy in the region, is an "enticing consumption market" that enjoys comparatively higher expansion.

"So Chinese and German manufacturers are highly complementary to each other. We cannot see any reason for them (German companies) not to welcome the Chinese investment, can we?" said Chen.

The experience of Zoje, Chen's company, also provides proof. Zoje made its first foray in Germany early in 2008, buying a German embroidery machine producer.

In the same year, a joint venture named Kaiser Lutra Textilmaschinen GmbH announced it was spending 10 million yuan ($1.6 million) on establishing a factory in Pinghu in East China's Zhejiang province, manufacturing embroidery machines branded Kaier Lutra.

In 2010, Zoje acquired a 29 percent stake in Germany-based Durkopp Adler AG, and later set up another factory in Wujiang, Jiangsu province, to make industrial sewing machines.

"The partnership provides our German counterparts with quick and easy access to the Chinese and Asian market, helping them cut their costs," said Chen.

According to Wang, there have been misunderstandings among the German government and enterprises opposed to Chinese investment proposals.

"They believed China bought their assets only to obtain technology, fearing that Chinese companies would fire local staff and destroy the management and business model when deals were signed," said Wang.

But such concerns are unwarranted, and Chinese companies' performance in many recent deals in Germany could clear their minds of doubt, he added.

Putzmeister, a family enterprise whose concrete pumps helped build the world's tallest building in Dubai and the Panama Canal, has been in pursuit of capital and increased international expansion since the financial crisis.

Cooperation with Sany provides the solution. As part of its 12th Five-Year Plan (2011-15), China said it will especially develop industries such as high-end manufacturing equipment, information technology, alternative energy, biotechnology, advanced materials and environmentally friendly technologies.

Xiang Wenbo, president of Sany, said Putzmeister would transfer part of its manufacturing capacity to China with the help of Sany, in an attempt to reduce cost and raise profits.

Sany also promised to maintain the original Putzmeister team, and the company's CEO will sit on Sany's board.

Xie Wei, financial manger of Jinsheng GmbH & Co KG, said, "There is huge potential for Chinese high-end manufacturers to make forays in Germany. China could provide all they (German companies) desire - capital, market, cheap laborers, and what is also important, business growth."

In 2010, Jiangsu-based Jinsheng acquired a 50 percent stake in a leading machine tools maker in Germany, EMAG Holding. Since then, the German company's business has grown by 30 percent annually. "This is a big surprise for them," Xie said.

"We don't exclude the possibility of more purchases in Germany," he said.

As the largest and second- largest manufacturers worldwide, China and Germany weathered the eurozone crisis, although their economic growth has slowed recently.

But as the paymaster in the eurozone crisis and the largest economy in the region, Germany has to fight to strike a balance in paying for the crisis and seeing its own economy prosper.

Despite German unemployment falling to its lowest level since 1990, German Chancellor Angela Merkel warned that conditions in the country could be more difficult in 2013 than in 2012, while the European debt crisis is far from over.

"Nevertheless, we need to have further continued patience. The crisis is far from over," said Merkel in her New Year's address."And the economic environment will not in fact be easier but rather more difficult."

The market value of the eurozone's 50 biggest companies fell 17 percent in 2011, a drop of 380 billion euros, though they recovered by some 8 percent in 2012.

"A consensus reached among German industrial circles is that Germany and the whole of Europe must open up to foreign businesses," and Chinese investment in particular, as China's economic growth continues and China's investment in Germany is comparatively much lower, said Peter Loescher, chairman of the Asia-Pacific Committee of Germany Business and also president and chief executive officer of Siemens AG.

Securing know-how

Tao Bailiang, consul-general at the Chinese Consulate in Munich, said: "China is facing unprecedented investment opportunities in Germany and around Europe, but Chinese companies need to be rational and clear in mind.

"They are not encouraged to make any decision before they are sure the deals can bring what they want," he said.

Since the financial crisis, Chinese companies have been aggressive in expanding abroad. In 2012, China's overseas direct investment in the non-financial sector grew by 29 percent year-on-year to $77.2 billion.

In their hunt for overseas assets, Chinese firms are increasingly targeting those owning strong research and development capacity, well-known brands and established global distribution networks.

Wang said,"China cannot compete with Germany in manufacturing. China needs to learn from Germany and to catch up with it. It will take at least two to three decades." Germany is the most powerful manufacturer worldwide, as well as the second-largest manufacturer.

Despite the economic slowdown, investment on research and development in Germany rose by 14.8 percent in 2011, twice the global average growth level during the same period, and compared with the growth of 5.4 percent in the European Union, according to German statistics.

By 2030, Germany will add investment worth 350 billion euros to develop the new- energy industry.

Wang said,"The period when China promoted its manufacturing by merely leveraging the low cost is becoming history now, and the new era of Chinese companies enhancing R&D and branding is coming."

Liang Wengen, chairman of Sany, said recently that the company expects to expand its exports and global sales network through the deal with Putzmeister. The company aims to see 40 to 50 percent of its sales revenue coming from abroad in five years, compared with 15 percent in 2012.

Zoje is now in talks on a wholly owned acquisition deal for Germany's PFAFF Industriesysteme und Maschinen AG, one of the world's leading sewing-machine makers, who failed to reshuffle its assets when its capital chain broke due to the financial crisis.

"Why did we enter and will continue to invest in Germany? It's very simple. We need to enhance the innovation capacity, especially in the high-tech sector. We need to gain access to the global market. We need to promote the brand, and we need to improve the management. Germany can meet all the demands," said Chen.

But, "anyway, I am confident it's only a matter of time before 'made in China' stands for high quality and premium brands".

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