Germany Continues to Expand in China

Germany's leading industrial groups are deepening their commitment to China despite growing warnings from the government and analysts about the economic and geopolitical risks of this dependency.

Between 2023 and 2024, German corporate investment in the Asian giant increased by 1.3 billion euros, reaching 5.7 billion, according to data from the Mercator Institute for China Studies (MERICS). The trend shows that although Berlin has identified China as a strategic vulnerability, its business sector still sees this market as essential for maintaining profits and sales volume.

Tensions between the private sector and the government have intensified in recent months. In private meetings, business representatives and government officials have exchanged reproaches without reaching consensus on solutions. According to sources familiar with these meetings, the key question remains unresolved: Who should bear the costs of reducing dependence on China?

Withdrawing from the Asian market would mean lower revenues for companies, potential layoffs for workers, and higher prices for consumers. The government, already facing significant obligations in climate, defense, and social welfare, is reluctant to shoulder part of this burden, according to Bloomberg reports.

China continues to offer immediate benefits that are hard for large multinationals to ignore. In key sectors such as automotive and chemical industries, profitability and access to the Chinese market outweigh geopolitical warnings. This weekend, Vice Chancellor and Finance Minister Lars Klingbeil will travel to Beijing to convey Berlin's concerns, while Chancellor Friedrich Merz publicly insists on the risks of relying on a country that could cut off access to critical supplies or use its economic weight as a tool of influence.

The automotive sector is the most exposed and also the one increasing its presence in China the most. Between 2023 and 2024, investment by German car manufacturers grew by 69%, reaching 4.2 billion, which accounts for two-thirds of the total invested by Germany in the Asian country.

China has become the most significant market for BMW, Mercedes-Benz, and Volkswagen, accounting for about a third of their sales, and they are advancing with new industrial projects and expanding commercial networks.

BMW has committed 3.8 billion to a battery plant in Shenyang, while Mercedes is moving its annual strategy summit to Beijing and developing electric vehicles exclusively for that market. Volkswagen, which describes China as its "second domestic market," has signed agreements with local companies to accelerate its technological innovation.

The dependency also extends to other sectors. BASF has just inaugurated its largest historical investment in China, a chemical complex valued at 8.7 billion. Bosch is deepening its technological collaboration in that country while reducing its workforce in Germany. Over the past five years, the average annual investment of German companies in China has been 5.2 billion, far exceeding the 3.3 billion recorded between 2015 and 2019.

Attempting to diversify suppliers is not easy either. Finding alternatives for critical raw materials, semiconductors, or industrial components involves higher costs and years of reconfiguring supply chains.

Executives fear having to choose between accepting lower margins, passing price increases onto consumers, or cutting staff unless the state intervenes. The powerful automotive association VDA has called for domestic reforms—reducing energy costs and bureaucracy—to facilitate the relocation of production processes in Germany.

However, not all companies share the same vision. Medium-sized companies like 4Jet have been reducing their exposure to the Chinese market for years after detecting recurring patterns in Beijing's industrial strategy: massive subsidies, accelerated expansion, and subsequent domination of global markets. But these decisions are more the exception than the rule.

Meanwhile, signs of vulnerability are multiplying. In October, several German manufacturers experienced a sudden interruption in chip supply from Nexperia, a Chinese supplier based in the Netherlands, posing immediate risks of production line shutdowns. At the same time, German exports to China have decreased, while dependence on cheap inputs from the Asian country is increasing, fueling fears of a progressive "hollowing out" of Germany's industrial base.

The German government is beginning to design response mechanisms. The creation of a national security council has spurred the development of a plan to diversify access to raw materials by the end of the year, as well as an economic security strategy planned for 2026.

But Chancellor Merz maintains a firm message for companies: if the bet on China goes wrong, there will be no public bailouts. "It's your risk," he warned this week. "And it can happen very quickly."