Despite the strong Swiss franc and weak Swiss exports to China, the majority of Swiss companies based there plan to increase their investments.
According to the 2015 Swiss Business in China survey, 72% of Swiss firms will boost their local investment. Moreover, 78% expect “higher” or “substantially higher” sales in China this year, compared with just 1% expecting lower sales.
The survey, compiled by the China Europe International Business School, the Swiss Center Shanghai, the Swiss Embassy in China, Swissnex, SwissCham and China Integrated, comprises responses of 62 Swiss companies out of the total 368 foreign-owned enterprises. All together, some 254 Swiss companies are registered with SwissCham China.
The first half of 2015 saw a decline in Swiss exports to most major markets, including a 6.6% drop in exports to China and Hong Kong. Yet the take-in is still significant.
“In the first six months of 2015, Swiss goods in the value of CHF7.2 billion ($7.5 billion) have been exported to China and Hong Kong. That means China remains the third biggest market for Swiss goods behind Germany and the United States,” explained Nicolas Musy in a statement released on Monday. Musy is the managing director of the Swiss Center Shanghai, a non-profit organisation facilitating the market entry of Swiss companies in the Far East.
Switzerland’s free trade agreement with China has been in effect for just over a year.
Low cost, high efficiency
Many of the managers surveyed cited lower production and purchasing costs as reasons for their confidence.
“The situation in China is paradoxical: Although labour costs are still increasing by 5% to 10% per year, the Producer Price Index (PPI) has been going down steadily, year after year, since mid-2011,” Musy said. “That means: Goods can be produced cheaper.”
The PPI was down by 4.6% in May 2015 compared to a year earlier. “This stronger than usual decline is certainly linked to the lower cost of oil and mineral resources, but it does not explain the steady decline of previous years,” Musy said.
According to Zhen Xiao, General Manager of the Swiss Center Shanghaiexternal link, the decline can be attributed to the increase in automation – and production efficiency – in China.
Thanks to a weakening currency and the progressive elimination of Swiss tariffs on Chinese goods by the free trade agreement, Chinese goods are becoming significantly cheaper for Swiss companies, before taking into account the rising Swiss franc.