China Shock 2.0: German Machinery Industry at a Crucial Crossroads – Insights from an Industry Expert

As Ulrich Ackermann prepares for retirement in April from the Machinery and Equipment manufacturers Association (VDMA), he leaves behind a legacy marked by a growing concern: a new wave of competition from China, echoing the challenges posed by Japan decades ago. This “China Shock 2.0,” as Ackermann calls it,presents a complex and multifaceted threat to the German machinery industry,particularly its vital Mittelstand.

Ackermann, whose career in the German machinery industry began in 1986, witnessed firsthand the devastating impact of Japanese competition on the country’s watchmaking sector. This experience shaped his understanding of the potential vulnerability of German manufacturers. “The watch industry almost completely disappeared from Germany,and there was a fear that this could also happen to the machinery industry,” he recalled. While that fear didn’t fully materialize, Ackermann now sees a new threat emerging: “that hasn’t happened but now we have a new situation – China Shock 2.0.”

The VDMA, representing 3,600 German small and medium-sized engineering companies (Mittelstand), has been increasingly vocal about the challenges posed by Chinese competitors. These companies are not only outcompeting German firms in the Chinese market but also in Europe and other global markets. Ackermann draws a distinction between the current situation and past challenges. “I think China is a different story. You can’t compare China to Japan,” he stated. This suggests a more complex and multifaceted challenge than the previous competition from Japan.

The core of the VDMA’s concern lies in what it describes as “unfair competition.” This involves allegations of Chinese government subsidies and pricing strategies that undercut German manufacturers. “We have many complaints from member companies about unfair competition on the European markets,” Ackermann explained.”Unfair competition means, on the one hand, subsidisation and prices which are much below our possibilities.” The severity of this is underscored by the testimony of VDMA members:

Many members say for [that] the price the Chinese sell here on the European market, they cannot buy the materials to produce the machine, Ackermann told the Post.

The implications of this situation are significant for the German economy, which relies heavily on its mittelstand for innovation and export-driven growth. The concerns raised by Ackermann and the VDMA highlight the need for a strategic response to address the challenges posed by this “China Shock 2.0” and ensure the continued competitiveness of German machinery manufacturers on the global stage.

Title: Navigating teh Crossroads: how the German Machinery industry Can Overcome China Shock 2.0

Introduction: A Historical Perspective on Global Competition

In the ever-evolving landscape of global manufacturing, the German machinery industry stands at a crossroads. With “China Shock 2.0” echoing the past struggles against Japanese competition, industry experts are sounding the alarm. As former VDMA President ulrich Ackermann prepares for retirement, he has left behind a critical legacy: a call to action for Germany’s mittelstand to stay competitive. We spoke with Dr. Karl Heinz Müller, a renowned expert on international trade and industrial strategy, to gain deeper insights into this pivotal moment.

Q1: Dr. Müller, can you provide us with a historical context of how past challenges from Japanese competition have shaped the German machinery industry?

The Japanese competition in the late 20th century serves as an significant historical lesson for the German industry. When Japanese manufacturers entered the global market with innovative practices and cost-effective strategies, they challenged the German machinery industry, notably sectors like watchmaking. This led to significant restructuring, where many companies had to modernize or specialize to maintain a competitive edge.

The key takeaway is resilience and adaptation. German firms learned to prioritize innovation and quality over price competition, strategies that could be crucial now as they face a new wave of competition from China.

Q2: What distinguishes “China shock 2.0” from past international competition, particularly from Japan?

“China Shock 2.0” presents a multifaceted challenge unlike any that the German industry has faced before. Unlike Japan, which had to compete within a more balanced global trading framework, China today benefits from significant government subsidies and pricing strategies that place them at a distinct advantage. This, combined with massive scale production capabilities, creates a competitive distortion on the European market.

Key Difference: The ability of Chinese manufacturers to sell products at prices where they seemingly cannot recover their production costs indicates a deeper issue tied to state-driven industrial policies, making this competition exceptionally challenging.

Q3: In your opinion, what strategic measures shoudl the german machinery industry adopt to cope with unfair competition from China?

To counter “China Shock 2.0,” German machinery manufacturers should focus on reinforcing innovation and enhancing value-added services. Here are key strategies:

• Innovation and R&D: Invest significantly in research and advancement to stay at the forefront of technology and efficiency.

• Quality and Specialization: Emphasize the quality and specialized capabilities of the mittelstand, which often surpass those of mass-produced Chinese machinery.

• Collaborative Networks: Foster stronger alliances and networks within Europe and globally to leverage collective strengths and resources.

• Government Engagement: Advocate for fair trade policies and measures against dumping and subsidies that distort the market.

Q4: How can European policymakers support their national industries in this challenging environment?

European policymakers play a crucial role in leveling the playing field. They should:

• Implement Fair Trade Policies: establish and enforce regulations preventing unfair trade practices, such as dumping and illegal subsidies.

• Facilitate Industryial Alliances: Encourage cooperation among European manufacturers to strengthen their position globally.

• Promote Innovation: Support innovation through grants and incentives that help small and medium-sized enterprises stay competitive.

• Address Intellectual Property (IP) Violations: Ensure robust enforcement of IP rights to protect innovations from unauthorized use or replication.

Conclusion: The Road Ahead for the German Machinery Industry

The German machinery industry faces a crucial juncture. By learning from history and adopting strategic measures, it can navigate the challenges posed by “China Shock 2.0.” This means doubling down on innovation, specialization, and collaboration — both within the industry and with policymakers.

Engage with Us:

We invite our readers to share their thoughts on how Germany can maintain its competitive edge. Are there other strategies or examples you think are critical in overcoming this global competition? Leave your comments below or share your thoughts on social media using #ChinaShock2_0. Together, we can explore solutions that will shape the future of this vital industry.