It is done: Shortly before the great celebrations for the 100th anniversary of the Communist Party, the leadership demonstrated in Beijing that China will become the next global superpower. Negotiations took place for eight years, and now the world’s largest free trade area (RCEP) is in place. In addition to China and the ten Asean states Vietnam, Singapore, Indonesia, Malaysia, Thailand, Philippines, Myanmar, Brunei, Laos and Cambodia, Japan, Australia, South Korea and New Zealand are also there. The economic partnership comprises 2.2 billion people and around a third of global economic output. Trump’s “America First” policy, on the other hand, looks like it was from another time.
In addition, the country has coped with the pandemic much better so far and is likely to be one of the few major economies to show growth this year. China’s GDP could increase by almost two percent, a decline of four percent is expected for the USA, and economic output in the euro area is likely to fall by as much as eight percent.
For many German companies, however, China’s strength is an important lifeline in the crisis. Last year exports were around 90 billion euros. To put it into perspective: Shortly before the millennia, it was only five billion euros. For the 30 largest German listed companies, China is now the second most important foreign market after the USA. The car manufacturers in particular are playing the China card. Daimler’s sales have tripled in five years, and the Stuttgart-based company generates a good 30 percent of sales there. The dependency is greatest at Volkswagen: The Wolfsburg-based company sells around 40 percent of their vehicles in China and has a market share of just under 20 percent.
The world’s largest car market is of course also of great importance for suppliers, such as Infineon. “Infineon’s high sales share with China of 30 percent is now proving to be strategically valuable, also with a view to the growth prospects of the entire region,” says Gil Shapira, chief strategist at the broker eToro.
Dependence on China also carries risks
North America is important for Nike competitor Adidas with a share of 20 percent in sales, but the Asia-Pacific region accounts for more than 30 percent of total sales and should continue to set the course. The sporting goods company also provides a good example of the disadvantages that high dependency leads to. If things go badly and the government in Beijing takes action, severe setbacks threaten. Sales fell by 85 percent in the spring when numerous cities were cordoned off and shops were closed.
Internationally, Apple is one of the biggest beneficiaries of the booming economy in China. According to estimates, the group achieves around seven percent of its sales in the People’s Republic, iPhone demand is likely to be 20 percent. However, Wynn Resorts has one of the greatest dependencies: The casino operator earns 70 percent of its revenues in Macau, which lives mainly from visitors from mainland China. Alibaba was the most popular share among private investors in Germany in 2020. The database of the Munich Stock Exchange spits out a 20 percent decline since October on Gettex. The background is political, as is so often the case in China. The Ant Group is reportedly monitored by a state task force and had to postpone its planned IPO. This came as a surprise to Alibaba as a shareholder. For investors who would like to have Alibaba in their portfolio, however, this is a nice entry opportunity.
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