Will China threaten German machinery manufacturing?

In the past two years, Germany's machinery manufacturing sector has seen a significant boost from increased exports to China, which has helped maintain strong year-end performance. However, this success has come with a growing concern: China is quietly emerging as a formidable competitor in the same industry. To better understand the situation, the German Federation of Machinery and Equipment Manufacturers conducted an in-depth survey of China’s industrial landscape and its potential for future growth. What stood out during the research was the sheer number of engineers being trained in China. “These engineers will play a crucial role in the future,” said Klingeberg, chairman of the federation. “While their education may not yet match Germany’s standards, their quality is improving, and that gives me some comfort.” The study, carried out jointly by the Inverpse Foundation, Dürger International Management Consulting, and the University of Darmstadt, revealed that nearly half of China’s university students are enrolled in engineering programs—compared to just 15% in Germany. Although the educational system still lags behind Germany’s, China is rapidly catching up. The technological gap between the two countries in engineering has now narrowed to about five years. Over the past few years, China’s average annual economic growth of 8% has fueled a surge in demand for machinery and equipment. As a result, China has become the world’s fourth-largest machinery manufacturer. While most of its production has been directed toward the domestic market, this could change soon. According to the federation’s survey, China is expected to face an oversupply of machinery by 2005, which could lead to reduced imports and negatively impact German manufacturers. In 2003, China imported €6.2 billion worth of German machinery and equipment, making it the third-largest importer after the U.S. and France. By the first four months of 2004, these imports had already risen by 17% compared to the same period in 2003. Yet, as Chinese manufacturers grow more capable, they may soon start exporting their own machinery, leading to direct competition with Germany. Klingeberg emphasized the growing threat from China: “We already feel the pressure in low-end products. We must act quickly—either form alliances or move some production to China. In the mid- and low-price sectors, the Chinese will be tough competitors. But in high-tech areas, our strategy is clear: invest more in R&D and stay ahead.” The federation is urging its members to take these changes seriously. While Chinese machinery still lacks the quality to compete globally, many Chinese companies are seeking international partnerships, especially with Germany. The combination of German technology and Chinese labor costs is seen as a strategic advantage. According to Joachim Ilke, who led the study, China hasn’t yet posed a serious threat to Germany’s machinery sector. “They lack experience in Western markets, management skills, and cutting-edge technologies. They’re also not fully aware of the global competition. Their attitude is still quite relaxed—they believe China will eventually dominate, just as it did centuries ago.”

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