Mass EU exodus?

Although Rittal is still based in the small town of Herborn in Germany's central state of Hesse, it is to a certain degree a Chinese company. Since 1996, it has been producing control cabinets in Shanghai, where it employs some 1,200 Chinese workers. 

"If we hadn't made the decision to come here, we wouldn't have such bright prospects for the future," says Karl Christoph Caselitz, the head of customer relations. "We might not have a future at all. Global business is unimaginable today without China."

This attitude is shared by around 5,000 German companies, which have moved part of their operations to the People's Republic, which is still witnessing growth despite the downturn in the global economy. The findings of a survey conducted among 550 European companies by the EU Chamber of Commerce in China confirm this.

"The outlook is really confident, really robust," says Alain le Couedic from Roland Berger, the German consultancy that helped conduct the survey. "When it comes to the overall importance of China in a company's strategy, when it comes to revenue expectations, profitability expectations, investments and hiring, it is rather positive."

Most EU companies in China are doing well, with more than half of them saying that China makes up at least 10 percent of their global business.

Moving operations elsewhere

However, there is another statistic, which the head of the EU Chamber of Commerce Davide Cucino says is "alarming": 22 percent of the companies surveyed are thinking of leaving China and moving their operations elsewhere.

There are several reasons, which include increasing pressure from Chinese competitors and rising costs. Wages are increasing by about 20 percent a year in China - firms that rely on cheap labor-intensive manufacturing processes rather than mechanized production are feeling the pinch in particular.

But this is not all. European companies also complain in the survey that Chinese state companies are given preferential treatment. Whole sectors such as oil, finance and telecommunications are essentially closed to foreign firms. This means that anyone trying to get a foot in the market has to set up a joint venture with a Chinese firm and clear a series of bureaucratic hurdles.

Moreover, foreign firms in this position are required against their will to disclose information about technology or patents. Half of the companies surveyed said they had lost business because of administrative problems.

Creating a level playing field

Foreigners are scrutinized more carefully than Chinese companies regarding certain rules, complains Piter de Jong, the head of the EU Chamber of Commerce in Shanghai. "Smaller companies complain for example about the enforcement of environmental regulations. Foreign companies are checked much more regularly on their environmental technology and performance than their local competitors."

De Jong says the chamber would like a "level playing field where everyone is equal." He calls on the Europeans to confront Beijing together and warns that otherwise there might be less investment from Europe.

Overall, the survey results do not suggest there will be a mass exodus of European firms from China, despite a certain degree of frustration. Over 70 percent of the companies in China are there to serve the Chinese market, which is harder to do from Vietnam or Bangladesh.

However, it will probably become progressively more difficult for companies wanting to produce as cheaply as possible in China, which is clearly what Beijing wants.

Author: Markus Rimmele / act
Editor: Gregg Benzow