China in pursuit of luxuries and technology

Trade between Germany and China is on the rise, opening up more opportunities for trade finance, says Commerzbank.
Michael Kotzbauer, Commerzbank
Michael Kotzbauer, Commerzbank

Many Western corporations have traditionally turned to mainland China for their supplies. But as these Chinese companies expand domestically and cross-border, they are demanding supplies from Western companies to fuel their own growth. At the same time, the affluent population in the world’s second largest economy is rising rapidly, sparking strong growth in China for exports to and imports from Germany, says Michael Kotzbauer, Asia regional board member at Commerzbank. And burgeoning trade flows means opportunities for transaction banks and their trade finance businesses.

German exports to China have increased at a compound annual growth rate of 15.5% since 2004, while total exports have remained flat according to Kotzbauer. Many Chinese companies establishing new factories and manufacturing facilities are demanding capital equipment and technology and Germany is a major supplier of this type of equipment. “As Chinese companies expand and establish new production bases they seek technology and innovation to automate their processes,” said Kotzbauer. However, it has not been one-way traffic. “China became Germany’s largest supplier last year for the first time and accounts for about 10% of total German imports,” he noted.

With China's affluent population also increasing, so too is demand for must-have luxuries to display that wealth. “Demand for luxury goods such as cars is on the rise among private individuals as levels of income increase in China,” Kotzbauer explained. The disposable household urban income has increased by almost 103% since 2004, according to the National Bureau of Statistics of China, and this has translated to higher demand for more handbags and fast cars among the rich.

German multinational corporations (MNCs) are no different than other developed Western counterparts when it comes to setting up in China. But what is interesting is the fact that smaller German companies are also aggressively seeking to establish themselves on the mainland. “MNCs are not the only ones interested in tapping the Chinese market,” said Kotzbauer. “We see increasing numbers of German small and medium-sized enterprises venturing into the mainland and forming partnerships with local companies.”

Commerzbank is positioning itself as a niche trade finance player in this market. Kotzbauer believes that the only way for a foreign bank to prevail on the mainland is to provide added value. For German companies it is easier to obtain financing from a bank that knows them through an existing relationship at home than it is from a local Chinese bank. That is exactly where Commerzbank can add value for its German clients, he says.

Equally, Europe’s largest economy is one of the preferred locations for large Chinese corporations looking to tap the European market. “Many Chinese companies also select Germany as the centre for their European franchises,” said Kotzbauer.

The healthcare, energy and technology sectors have been singled out as China’s new strategic emerging industries in its 12th five-year plan and Chinese regulators will welcome advice and training from experienced foreign companies to help shape the implementation of the plan. This will present additional opportunities for Western companies to tap the Chinese market and Kotzbauer is confident that the largest economies on both continents are in a prime position to continue to improve trade relations.

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