China as a trading partner and competitor: turning away from the "win-win" situation


"Made in China 2025" leads to intensified competitive pressure in mechanical and plant engineering. A new study examines various scenarios up to the year 2030. Companies in Europe can continue to benefit from the upswing in the People's Republic, but there is a growing danger of falling exports to the Far East.

China is an enormously important export market for mechanical and plant engineering, and for years the People's Republic has been in a neck-and-neck race with the USA for the top spot in the export rankings. At the same time, driven by its "Made in China 2025" strategy, the People's Republic is becoming an increasingly strong competitor for mechanical engineering companies from Germany and Europe worldwide. A new study by the Bertelsmann Foundation and VDMA analyzes developments up to 2030 in several scenarios, and the core result is that if the growth of the Chinese machinery market continues as it has in recent years, the machinery and plant engineering industry will still achieve a high volume of exports to the People's Republic in 2030. "However, growth is limited. Even the scenarios that are positive for us point to a stagnation of machinery exports to China from the middle of the decade," says Ulrich Ackermann, Head of VDMA Foreign Trade. And there will then no longer be a "win-win situation" for everyone: if China manages to achieve the targeted high technology level by 2025, machinery exports from Germany could fall back to the export level of 2019 from the middle of the decade.

"As long as there is no level playing field in the Chinese market and international markets, the EU must also protect itself from unfair competition."

Five scenarios with different consequences
The study "What China's industrial policy means for the German economy - scenarios for "Made in China 2025 using the example of German mechanical engineering" was prepared by the Bertelsmann Foundation in cooperation with the Fraunhofer Institute for Systems and Innovation Research ISI and the VDMA with the help of model calculations and individual interviews with industry representatives.

It examines a total of five scenarios:

  • Baseline scenario: "Made in China 2025" will only be a partial success for China. In this scenario, the German mechanical engineering industry can expect a further increase in exports to China in the first three to four years of the decade. From 2025 onwards, exports will then stagnate.
  • "Made in China 2025" will be a complete success for China (two scenario variants): In the scenarios that assume a complete success of the "Made in China 2025" strategy, German machinery and plant manufacturers can expect a significant market slump until 2030 (export volume 2030: 13 billion euros compared to 18 billion euros in 2019).
  • "Made in China 2025" will not be a success for China (two scenario variants): If the "Made in China 2025" strategy fails, the machinery and plant engineering industry from Germany can expect strong long-term growth in exports to China. Thus, developments are possible that could almost lead to a doubling of the export volume by 2030 compared to the reference year 2019 (34 billion euros compared to 18 billion euros).

The overall conclusion of the scenario study is that "the eternal growth in the Chinese market is likely to come to an end," says Ackermann. Companies can still expect export growth for a few more years, but its volume will tend to decline. "It is therefore important to keep a constant eye on one's own dependence on the Chinese market and to prepare to open up alternative growth markets in Asia in good time," explains the VDMA foreign trade manager. In addition, it is true that Chinese competitors, who are competing with sufficiently good technology and are much more cost-effective, will be very successful in many emerging markets. "And on the horizon, Chinese competitors can also already be seen on the European domestic market," says Ackermann.

Implications for policy
The ongoing rise of China as a technology nation also has implications for policy. "We need a common EU strategy on how to confront China in the future, coordinated with the US if possible. In particular, this involves a successful conclusion of the EU-China Investment Agreement with improvements in market access and a levelling of the playing field for European companies in China. Agreements on standards in the field of intellectual property protection and data protection must also be concluded," Ackermann demanded. Germany and the EU must also strengthen their own competitiveness. This involves strengthening Germany and Europe as business locations, for example by promoting research, development, education and digitisation. Also, the reduction of bureaucracy, which paralyses innovative entrepreneurship, should finally be seriously advanced.

"As long as there is no level playing field in the Chinese market and in international markets, the EU must also protect itself from unfair competition," Ackermann adds. On the one hand, this means using existing trade defence instruments. On the other, it means protecting against distortions of competition from subsidised companies in the EU's internal market, access to the EU's public procurement markets and a level playing field in export financing.