How can China make everything very cheaply

Production abroad : China is getting too expensive

Helga Kreft's enthusiasm for China did not last long. The toy manufacturer from Hagen had wooden toys made in the country for five years. Then she'd had enough. “The products neither met our quality standards, nor was production there worthwhile in the long run,” says the medium-sized company. "If you want good goods, you have to pay almost as much for them in China as elsewhere," she says.

Kreft is by no means alone with this experience. Because for more and more German companies, China has become a disappointment. After the numerous recalls of toxic toys by large manufacturers last year, many other companies are now also afraid of losing their good reputation. In the opinion of numerous companies, the processing of products made in China often leaves a lot to be desired. And last but not least, the country is no longer profitable for everyone. For example, Adidas boss Herbert Hainer announced just a few days ago that he would cut production in China in favor of other Asian locations.

“Made in China” has long been synonymous with cheap production. But a lot has changed in the meantime. Rising energy costs, stricter environmental regulations, fewer tax breaks, a shortage of skilled workers and the appreciation of the Chinese currency against the dollar have made the country significantly more expensive. The inflation rate, which was around eight percent in the first half of the year, also caused wages to rise - by up to 20 percent, as Harald Kayser, partner at the management consultancy PriceWaterhouse-Coopers (PWC), says. The Chinese are now becoming too expensive for some industries and companies. They would therefore look to other countries, such as Bangladesh, India or Kazakhstan, for cheaper production locations or return entirely to Germany. "The caravan is now moving on," says Kayser.

According to estimates by the Association of German Engineers (VDI), this could apply to around one in five of the around 1,600 German companies with production facilities in China. However, there are no exact dates. "A lot of companies have entered the Chinese market naively, without considering that wages will rise there too," says VDI spokesman Sven Renkel.

Even Chinese companies are increasingly relocating simple production abroad, reports Eddy Henning, head of corporate clients at Deutsche Bank in Beijing. “Those who only want to make T-shirts are more likely to go to Vietnam or Africa.” For investors from Europe, Romania and Bulgaria also competed with China. Shanghai is now more expensive than some Eastern European locations, says Hans Röhm from the consulting firm Deloitte. He therefore believes that it is mainly those German companies that are leaving China that originally came to the country because of the cost advantages. These included the consumer goods industry and the textile industry, which produces in large quantities. But manufacturers of high-quality goods would also have to consider whether the market would be an option for them in the long term, he says. "When it comes to small quantities of high quality, it often doesn't work so well in China," says Deutsche Bank man Eddy Henning. And if the quality is not top, it harms the company's reputation, explains Deloitte consultant Röhm. "We therefore advise many of our customers to consider production in Germany again."

Yet. Very few companies can do without China entirely. The market is too big in the country in which the population's prosperity and thus consumption is growing - and which will possibly replace Germany as the world's export champion in the coming year. That is why none of the experts expect German companies to turn their backs on China in rows. “Most companies cannot afford to do without the booming Chinese market,” says Röhm.

The shipbuilding supplier Hatlapa from near Hamburg is one of the companies that serve the Chinese market directly. The company has been represented in the country for around 20 years, and its customers are the large state-owned shipyards. Of course, wages and social security contributions rose in China too, but nothing can be done about that, says Ralf Nicolaisen, deputy sales manager at Hatlapa. After all, mechanical and plant engineering is fortunately not as wage-intensive as the textile or consumer goods industries. There can therefore be no question of an emigration from China.

"Foreign direct investments are still very high," says Deutsche Bank man Henning. "Whether one or the other migrates is of little importance." Collaboration: Stefan Kaiser and Daniel Rhee-Piening

Now new: We give you 4 weeks of Tagesspiegel Plus! To home page