A research report exclusively obtained by Reuters on Sunday showed that in the first half of this year, German companies’ investment in China increased significantly. The German Economic Research Institute in Cologne, which has close relations with employers, concluded by analyzing data from the Bundesbank that Germany's new investment in China in the first half of this year was 5.6 billion euros.
This amount is up about one-third from the same period last year. However, from a longer-term perspective, this level of investment is roughly equivalent to the average level from 2020 to 2025. However, a new trend is that more and more German companies are using profits from their business in China to obtain funds for corporate expansion.
Jürgen Matthes of the German Institute for Economic Research said: "German companies have no choice but to invest in China. China is not only an important sales market, but also a 'gym' for many companies." In other words, only by being able to gain a foothold in China's fiercely competitive market is it possible to remain invincible in the global market.
At the same time, German companies have become increasingly cautious about investing in the United States. In the first half of this year, investment by German companies in the United States dropped by almost two-thirds, to about $4.3 billion. U.S. President Trump’s ever-changing economic and tariff policies have offended many trading partners, including the European Union and Germany.
The German Economic Research Institute believes that German companies’ enthusiasm for investing in China continues to be closely related to the RMB exchange rate. Mattes said: "In China, production costs are artificially low, the state provides subsidies to enterprises, and the artificially undervalued RMB exchange rate further reduces the export price of Chinese products." He said that if a company hopes to compete with Chinese companies in the fierce price competition in the global market, it has to move part of its production to China so that it can also benefit from these factors that distort competition.
Mattes emphasized: "For Germany, this situation means that more and more production and jobs are being transferred to China. The EU must stop this unfair competition and impose countervailing tariffs on Chinese products in order to balance trade."
The report of the German Economic Institute also pointed out that behind the overall steady increase in investment by German companies in China, there is also an obvious trend of polarization. In fact, some companies are scaling back their business in China because the local business environment is becoming increasingly difficult and competitive pressure is increasing. Data show that since 2017, the amount of equity investment by German companies in their businesses in China has exceeded the equity investment in new businesses in China. From 2017 to 2024, the average annual new equity investment in China is approximately 2 billion euros, while the amount of equity withdrawals in China is 3.6 billion euros.
For some time, the German industry has been putting pressure on Chancellor Merz, demanding that the government adopt a tougher policy toward China. In the face of unfair competition from China, the economic and business circles have asked the government to introduce severe countermeasures.
For a long time, Germany has not advocated the establishment of trade barriers against China due to concerns about retaliatory actions by China. However, as the stance of economic lobby groups becomes increasingly tougher, Germany's China policy may also undergo a turning point. The German government is formulating relevant plans to deal with the trade imbalance between Germany and China. Germany's position is also likely to have an impact on the entire EU. In October this year, the EU will hold relevant consultations with China.
A report by the OECD in June this year showed that compared with the level of turnover, Chinese companies received three to eight times more state support than companies in OECD member countries. Last year, Germany's trade deficit with China increased by 22 billion euros to approximately 89 billion euros. Volker Treier, director of the Foreign Trade Economics Department of the German Chamber of Industry and Commerce (DIHK), said: "We must have relevant discussions with China about what exactly is the problem? If it is finally confirmed that the trade imbalance is indeed caused by subsidies or unfair competition, then this topic must be put on the agenda."
