23 Jan 2018
Germany: Market Profile
Major Economic Indicators
- As Germany is a member of the European Union (EU), its trade relations with Hong Kong/the Chinese mainland are affected by EU’s common external trade policy and measures. As a euro-zone member, it has also adopted the euro as its legal tender from 1 January 2002.
- The EU’s new scheme on generalised system of preferences (GSP) entered into effect on 1 January 2014. Under the new scheme, tariff preferences are removed for imports into the EU from countries where per-capita income has exceeded US$4,000 for four years in a row. As a result, the number of countries that enjoy preferential access to EU markets was reduced from 176 to less than 80. While the Chinese mainland remains a beneficiary, many of its exports such as toys, electrical equipment, footwear, textiles, wooden articles, and watches and clocks have already been “graduated” from the preferential treatment.
- A number of Chinese mainland-origin products are subject to EU’s anti-dumping duties, including bicycles, bicycle parts, ceramic tiles, ceramic tableware and kitchenware, fasteners, ironing boards and solar glass, which are of interest to Hong Kong exporters.
- Hong Kong’s total exports to Germany increased by 9% to US$8.5 billion in the first eleven months of 2017, while its imports from Germany rose by 5% to US$6.2 billion.
- As one of the most popular investment destinations, the inflows of foreign direct investment (FDI) to Germany amounted to US$9.5 billion in 2016, with China’s contributing US$410 million. As of the end of 2016, China’s total stock of FDI in Germany exceeded US$7.8 billion, up from US$845 million in 2007. Hong Kong, holding an FDI stock of US$625 million as of end-2016, ranked 5th on the list of Germany’s Asian investors (after Japan, South Korea, the Chinese mainland and India).
- To promote the development of competitive industries such as smart solutions, digital economy, electronics and micro-technology, energy efficiency and green building, energy storage, life sciences, logistics, machinery and equipment, corporate services environment and resources, aerospace and automobiles, Germany has put in place various incentives programs for both local and foreign investors, offering different measures to reimburse investment costs (e.g. cash incentives, public loan and public guarantee programmes) and subsidise costs (e.g., labor-related and R&D incentives) for location-based investments. More information on the investment environment and the relevant regulations can be found at Germany Trade & Invest.
- Following the entry into force of the Investment Promotion and Protection Agreement (IPPA) in February 1998, Hong Kong and Germany are in the process of negotiating a Double Taxation Agreement (DTA) to accommodate greater synergies.
Current Economic Situation
Low energy prices, a benign labour market and favourable financing conditions have helped sustain domestic consumption and therefore the German economy. Firming overseas demand, coupled with a weak euro, has also started to lend support to exports and manufacturing activities. However, continued geopolitical tensions arising from the refugees from the Middle East, the Russian-Ukrainian crisis and Brexit have weighed on consumption and business confidence, hampering the pace of economic growth.
Looking ahead, the solid labour market, the pick-up in world trade and the firming EU recovery should continue to be the main drivers of the German economy. Higher domestic and export demand will keep capacity utilisation high and is set to boost business investment. Yet lingering geopolitical tensions, the difficulty in forming a governing coalition and the possibility of further monetary tightening will likely put a drag on the pace of economic growth. Taken together, the German economy, after an estimated 2.2% expansion in 2017, is forecast to see another 2.1% growth in 2018.
Germany is a member of the EU that comprises 28 member states, and it follows EU's common external trade policy and measures. As a euro-zone member, it has also adopted the euro as its legal tender from 1 January 2002. As it now stands, a total of 19 EU members, namely Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia and Spain, has adopted the euro as their legal tender.
No quotas are imposed on textiles and clothing exports, as well as non-textile products exports from Hong Kong and the Chinese mainland at present.
Scheme of Generalised Tariff Preferences
The EU’s new scheme on generalised system of preferences (“GSP”) entered into effect on 1 January 2014. Under the new scheme, tariff preferences are removed for imports into the EU from countries where per-capita income has exceeded US$4,000 for four years in a row. As a result, the number of the countries that enjoy preferential access to EU markets was reduced from 176 to less than 80. While the Chinese mainland remains a beneficiary, many of its exports such as toys, electrical equipment, footwear, textiles, wooden articles, and watches and clocks have already been “graduated” from the preferential treatment. Regarding Hong Kong, the territory has been fully excluded from the EU’s GSP scheme since 1 May 1998.
The EU has initiated anti-dumping (AD) proceedings against certain mainland-origin products. Currently, there are a number of Chinese mainland-origin products are subject to EU’s anti-dumping duties, including bicycles, bicycle parts, ceramic tiles, ceramic tableware and kitchenware, fasteners, ironing boards and solar glass, which are of interest to Hong Kong exporters. As at end-December 2017, the EU did not apply any AD measures on imports from Hong Kong.
To combat the spread of the Asian longhorn beetle, the EU introduced in July 1999 emergency controls on wooden packaging material originating in the Chinese mainland. Wood covered by the measures must be stripped of its bark and free of insect bore holes greater than 3mm across, or have been kiln-dried to below 20% moisture content.
For health reasons, the EU has adopted a Directive on the control of the use of nickel in objects intended to be in contact with the skin, such as watches and jewellery. Following the emergency ban adopted in December 1999, the EU has adopted a Directive to ban the use of some phthalates in certain PVC toys and childcare articles on a permanent basis, which came into effect from 16 January 2007. In addition, the EU has adopted a Directive to prohibit from September 2003 the trading of clothing, footwear and other textile and leather articles which contain azo-dyes, from which aromatic amines may be derived.
On the other hand, the EU has adopted a number of Directives for environmental protection, which may have an impact on the sales of a wide range of consumer goods and consumer electronics. Notable examples include the Directive on Waste Electrical and Electronic Equipment (WEEE) implemented in August 2005, and the Directive on Restriction of Hazardous Substances (RoHS) implemented in July 2006. On 3 December 2008, the European Commission (EC) presented two proposals: one for a recast RoHS Directive and the other for a recast WEEE Directive.
The recast RoHS Directive was published on 1 July 2011 and entered into force on 2 January 2013. The new Directive continues to prohibit EEE that contains the same six dangerous substances as the old RoHS Directive. Nonetheless, the new Directive will widen, as from 22 July 2019, the current scope of the previous RoHS Directive, by including any EEE that will have fallen out of the old RoHS Directive’s scope, with only limited exceptions.
Another important law for Hong Kong companies to grapple with concerns waste EEE, i.e., the WEEE Directive. With the formal approval on 7 June 2012, the recast WEEE Directive entered into force on 13 August 2012, while Member States have until 14 February 2014 to transpose the new directive into national law. In brief, the recast WEEE Directive will see Member States subject to higher collection/recycling targets (i.e. 45% collection rate as of 2016 and 65% as of 2019) and a wider scope of measure covering essentially all electric and electronic equipment, while establishing producer responsibility as a means of encouraging greener product designs.
On the heels of the recast RoHS and WEEE Directives, the EU’s new framework Directive for setting eco-design requirements for energy-related product (ErP) is now in place. The ErP Directive is no longer limited to only EEE (as it was under its predecessor, the energy-using product, or EuP, Directive), but potentially covers any product that is related to the use of energy, including shower heads and other bathroom fittings, as well as insulation and construction materials.
Moreover, REACH, an EU Regulation which stands for Registration, Evaluation, Authorisation and Restriction of Chemicals, entered into force in June 2007. Among others, it requires EU manufacturers and importers of chemical substances (whether on their own, in preparations or in certain articles) to gather comprehensive information on properties of their substances produced or imported in volumes of 1 tonne or more per year, and to register such substances prior to manufacturing in or import into the EU.
Following the entry into force of the new Toy Safety Directive (Directive 2009/48/EC) on 20 July 2011, the Official Journal of the EU published on 11 August 2011 references to two important safety standards concerning electric toys (EN 62115:2005 and its amendment EN 62115:2005/A2:2011) and two previous standards on the mechanical and physical properties of toys and a standard on the flammability of toys.
Hong Kong’s Trade with Germany 
Hong Kong’s total exports to Germany increased by 9% to US$8.5 billion in the first eleven months of 2017, after dropping by 5% to US$8.6 billion in 2016. Major export items in January-November 2017 included telecommunications equipment & parts (shared 13% of the total), electrical apparatus for electrical circuits (10%), toys, games & sporting goods (9%) semi-conductors, electronic valves & tubes (9%), computers (8%), watches and clocks (5%), electric power machinery & parts (5%), articles of apparel, of textile fabrics (5%), electrical machinery & apparatus (4%) and parts & accessories of office machines/computers (4%).
On the other hand, Hong Kong’s total imports from Germany grew by 5% to US$6.2 billion in the first eleven months of 2017, after decreasing by 4% to US$6.5 billion in 2016. Major imports in January-November 2017 included semi-conductors, electronic valves & tubes (shared 8% of the total), passenger motor cars (7%), measuring, checking, analysing & controlling instruments & apparatus (7%), electrical apparatus for electrical circuits (5%), telecommunications equipment & parts (5%), fresh, chilled or frozen meat & edible meat offal (4%), medicaments (including veterinary medicaments) (3%), non-electric engines and motors & parts (3%) and machinery/equipment for particular industries & parts (3%).
German Involvement in the Hong Kong Economy
Germany has a substantial investment in Hong Kong. According to the latest available figures from the Census and Statistics Department, total stock of direct investment from Germany amounted to US$4.0 billion (or HK$30.7 billion) as at the end of 2016.
Germany is well represented in finance, trading and other sectors of Hong Kong. The number of German companies operating in Hong Kong stands above 500. Examples include Adidas, Audi, BMW, Bosch, Commerzbank AG, Deutsche Bank, Olympia Office Machines (H.K.) Ltd., BASF, Markant Trading Organisation (Far East) Ltd., Lufthansa German Airlines, Henkel Asia-Pacific Ltd., TÜV Rheinland, Siemens, Miele, Schenker, Birkenstock and Phonejoy Solutions Ltd.
As of 1 June 2017, there were 87 German companies with regional headquarters in Hong Kong, while another 140 had regional offices. Reflecting Germany’s diverse activities locally, there were about 1,050 German nationals resided in Hong Kong as at the end of 2017.
 Since offshore trade has not been captured by ordinary trade figures, these numbers do not necessarily reflect the export business managed by Hong Kong companies.