Great business opportunities for German companies in western China

• China's western provinces still have a lot of catching up to do: 69% of the country's total area, 28% of its population, but only 19% of GDP
• Good prospects for German companies in areas like engineered products and industrial systems
• Attractive opportunities also arising for green-tech

Boom-land China offers German companies enormous opportunities – not only in the flourishing East but also in the economically weaker West of the People's Republic. This has been confirmed by a study of the Chinese government's "Go West" strategy, conducted by Roland Berger Strategy Consultants and commissioned by the Federal Ministry of Economics.

"The western provinces are still lagging behind the dynamic East of China. But this catch-up potential is precisely why they offer considerable opportunities to German companies," says the study's author Thilo Zelt. With its "Go West" strategy the Chinese government is trying to direct the economic boom into the country's less prosperous western regions. So far, the "Go West" strategy has not yet achieved its targets. While the western provinces make up as much as 69% of China's surface area and 28% of its population, they can still only claim 19% of GDP, 14% of direct foreign investment, 6 % of foreign companies, and 4% of exports. "The "Go West" strategy must therefore be continued as a matter of urgency," says the Roland Berger expert.

Plans for infrastructure expansion

Plans are in place to develop the infrastructure in the western provinces, especially road and rail networks. Moreover, certain industries are to be the focus of promotion efforts: energy, chemicals, minerals mining and processing, agricultural goods processing, engineered products, high-tech sectors, and tourism. In addition, the government intends to promote three focus regions to act as development beacons: the Guanzhong-Tianshui Region (in Shaanxi and Gansu Provinces), the Chengdu-Chongqing Region and what's known as "North Bay" in Guangxi Province.

Germany's foreign trade with China

High-quality industrial goods now dominate Germany's foreign trade with China. Engineered products and industrial systems account for around 30% of German exports to the People's Republic. The automotive industry saw a significant decline in 2009, now taking just a 13% share. Electrical engineering and chemicals each account for 11% of exports. The exports structure is closely reflected in a breakdown of German companies currently operating in China's western provinces: 45% of them work in engineered products, 9% in the auto industry, 11% in electronics and 7% in chemicals.

Opportunities in retailing and logistics

The West of China is gradually catching up. The economy in the western provinces is growing more or less as fast as in the rest of the country, with even stronger growth in some areas. In the cities, growth has been accompanied by rising incomes and higher consumer spending. What's more, urbanization rates in the West are increasingly coming into line with those in the East. This factor alone means that an additional USD 33 bn in disposable income could be generated for consumption. German companies have not so far gained a secure foothold in the consumer goods sector. So they are more likely to succeed by expanding existing and developing new production centers in industries that directly interface with the consumer goods sector, such as retailing and logistics. Good opportunities also exist in engineered products and industrial systems as well as in the energy and utilities sector. For the automotive industry, the city of Chongqing and Sichuan province offer a focus of interest. Finally, the massive problems with environmental pollution facing western China are opening doors to the German green-tech industry, already the global leader. "But to exploit the opportunities in western China, German companies need to have a precise understanding of the market and the "Go West" strategy being pursued by the Chinese government," stresses Thilo Zelt.