Germany is investing more than ever in China. According to official Bundesbank data examined by the IW Institute, German direct investment in China increased by 4.3% last year, reaching 11.9 billion euros. This increase highlights a persistent trend of German companies pouring capital into China despite governmental calls for restraint and reduced investment guarantees.
German companies have been just as active in investing in China over the past three years as they were over the previous six years, according to data from the IW Institute that Reuters exclusively obtained. However, a closer look reveals a more complex picture, with investments in China over the last four years primarily financed through reinvested profits and capital withdrawals.
According to IW economist Juergen Matthes, there appears to be a divergence between large corporations and small to medium-sized enterprises (SMEs). While some SMEs seek to scale back their involvement with China or exit the market altogether, larger companies seem to maintain their robust investments.
A recent survey by the German Chamber of Commerce in China found that the proportion of German firms contemplating an exit from the Chinese market has more than doubled in the past four years, reaching 9%.
Despite these considerations, German foreign direct investment experienced an overall decline last year, dropping to 116 billion euros. However, investment in China as a proportion of Germany’s total foreign investments climbed to 10.3%, marking the highest level since 2014. In contrast, direct investments in other Asian countries remained stagnant at around 8%.
This persistent trend poses a dilemma for Germany as it seeks to balance its desire to reduce exposure to China with the economic realities of maintaining trade relations with its most significant partner for the eighth consecutive year. Chancellor Olaf Scholz’s coalition government faces internal divisions regarding the appropriate risk exposure to China, with the Social Democrats advocating for more moderate cuts compared to their coalition partners, the Free Democrats and the Greens.
Against this backdrop, Scholz’s upcoming visit to China with a business delegation from April 15 to 16 underscores the ongoing importance of bilateral economic relations despite the complexities and challenges involved.
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