German firms diversify in Asia to reduce China risk – survey

By Sarah Marsh

BERLIN (Reuters) – Nearly half of German companies operating in China are taking measures to reduce the risk of doing business there largely due to growing geopolitical tensions, according to a new survey by the German Chamber of Commerce in China.

Firms are building supply chains that are independent of China, shifting some operations away from the country and growing markets elsewhere in Asia, according to the survey of 566 companies conducted between Sept. 5 and Oct. 6.

Some 83% of companies cited geopolitical tensions as the main reason for their steps to mitigate risks related to China business, while 45% and 24% respectively put it down to the country’s economic slowdown and greater focus on self-reliance.

Other countries are benefiting from this risk mitigation strategy, according to the survey – with 57.5% of companies surveyed saying they would be investing more in India, followed by 37.9% for Vietnam, 30.1% for Thailand, 23.3% for Malaysia and 20.1% for Singapore.

The survey comes five months after the government unveiled a strategy toward de-risking Germany’s economic relationship with China, its biggest trade partner and confirms anecdotal evidence reported by Reuters of German firms reducing their dependence on China.

Other countries in the West are also promoting greater risk mitigation, amid growing concerns about China’s increasingly assertive attitude toward Taiwan and in the South China seas, as well as its tightening grip over its domestic economy.

This in turn is beginning to have an impact on the world’s second-largest economy, with China recording its first-ever quarterly deficit in foreign direct investment in July-September.

Still, of the German companies surveyed, some 54% said they wanted to invest further in China – up from 51% last year- to localise production – in effect also potentially shielding it from the repercussions of geopolitical spats, according to economists.

That was more than the 44% that said they were pursuing risk mitigation strategies.

(Reporting by Sarah Marsh; Editing by Sharon Singleton)