Name: Germany’s China dilemma: Exports fall as competition rises | DW News
Uploaded: 2026-02-13T17:11:20.000Z
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Adverbs of degree

The Chinese market used to be really a gold mine for German companies.

Transition words & phrases

Now it's producing profit warnings for a lot of German companies because they're struggling there.

It's not translating to more German jobs and more German prosperity.

They've seen their competitive edge erode very quickly.

What Germany really needs to do is talk less about China and do more.

Is Germany, the world's third biggest economy, heading for a China shock?

Over the past year, German political leaders, central bankers, business association and trade unions have begun talking openly about the risks of intensifying industrial competition with China.

This debate has intensified as Friedrich Metz prepares to make his first visit to China as German Chancellor.

The rhetoric, however, hasn't been matched by decisive policy action.

Says research group Rhodium is in its latest paper called Germany's China Shock Revisited.

We're joined by Rhodium's senior advisor, Noah Barkin to talk us through this.

Noah, thanks very much for taking the time today.

Now, two years ago, you pointed out that the close economic relationship between Germany and China in the first two decades of this century were at an end and that a period of intense industrial competition had begun.

Yes, Clifford, we did a note a couple years ago called Tipping Point, which pointed to three trends.

The decline in German exports to China, declining market share and profits for German companies in China, and

perhaps the most important intensifying competition between German companies and Chinese companies in third markets.

And so what we did in our new note was sort of take a new look at all of these three trends.

And I think across the board, we've seen a deterioration from the German point of view of these three trends.

So we've seen German exports to China, they fell about 9% just in the past year, and

they're down almost a quarter since 2022.

So imagine that a quarter of German exports have disappeared in the last three years or so.

And then on market share, the Chinese market used to be really a gold mine for German companies.

Lucrative profits, a source of lucrative profits.

And, and then competition on third markets has.

And we're seeing, you know, we've seen this for a while in certain sectors like machinery, but

German companies are also struggling against Chinese competitors that are offering much cheaper products.

So is it fair to say that, you know, with all these tech advances, say, for example, and

industrialization that we've seen in China and industrial policy, that China is getting better at doing Germany than Germany is.

I mean, in past decades, Germany, it was really a sort of, to use a Chinese phrase, a win, win relationship because German companies produced the products that a growing China really needed, right?

The cars, the machine tools, the industrial goods, also the technological know how.

But that has reversed, as you said, over the past five to 10 years.

And in many sectors where Germany was really dominant, China is now in the lead.

So this has been a sort of a reversal of fortunes for German companies.

And it's also important to note that in the Chinese market, you know, this is a market that is very protected.

So we've seen also a change where Chinese authorities have been demanding that German companies localize their production, localize their supply chains.

And so we've seen a bit of a decoupling from German production on the one hand, and

German prosperity, German jobs, and on the other hand, success in the Chinese market.

So German companies are having trouble exporting to China and increasing their producing in China.

So even if they are having some success in China, it's not translating to more German jobs and more German prosperity.

You're describing, to put it mildly, I suppose, a very serious situation here.

And how big do you think the awareness is of this in China?

Because all we hear about is big, the big companies like BASF and Volkswagen saying we need more China.

And yet the situation you're describing seems to be, seems to be the opposite, that there's a serious situation developing.

Well, I think we have had a significant change in the narrative on China over the, just over the past year, I would say you have companies, carmakers, chemicals companies, machine tools companies that are calling increasingly for either trade defense measures from Brussels or the introduction of local content rules, sort of made in Europe rules.

So among the companies there has been, I think, a shift.

Of course, there are companies that have invested very heavily in China and that are still heavily dependent on the Chinese market.

So they're not willing to, to give up their presence there.

They're not talking about decoupling, but they are becoming increasingly worried.

And I would say in some sectors it's really a sense of panic because they've seen their competitive edge erode very quickly.

On the political side, I think the tone has also changed.

But as we note in the report, I think the rhetoric hasn't always been matched with real policy action.

I think the Merzk government, in power since May, the first six months, was very focused on Ukraine, Russia, on dealing with the Trump administration, transatlantic ties.

Since late last year, it has Shifted its focus to the domestic economy and China.

The risks in the China economic relationship have sort of been gotten short shrift and I think that will change now with merits going to China.

It is refocusing the government on the challenge from China.

I mean in some ways the economic situation in China is, isn't very helpful for.

It is the opposite of helpful for, for German firms right now because Chinese consumers aren't spending money and they're also trying to export their way out of, out of the economic doldrums.

Are there any signs that Chinese firms are hitting German exports to other markets?

Not, you know, we say within the region or other markets globally?

We take a look in our note at global export market share.

So and we see that in a number of, of sectors, power generation, machinery, that Chinese companies are now accelerating their market share gains outside of China, including in Europe.

Now I think there are some markets where the German companies are still holding up well, especially markets well, obviously in Europe, but

also on Europe's periphery, the UK for example, on the EU's periphery, the UK, Turkey.

So they're holding up there fairly well mainly because there are trade agreements, customs agreements.

But if you look beyond that in other parts of Asia, Africa, Latin America, China is making huge gains against German companies.

So do you think we will see political countermeasures to combat this specter of deindustrialization?

Well, I think we have an interesting debate going on in Germany.

The European Commission describes its, I guess you would say economic security or de risking policy along three pillars.

Protect is about trade, defense, local content restrictions, cybersecurity related restrictions on Chinese companies trying to come into the European market.

Promote is about promoting companies either by reducing bureaucracy or completion of the single market.

That's something that is on the agenda at the European level this week with leaders meeting in Belgium.

And then there's the partner side which is really clinching trade deals with, with other trading partners like India, like the Mercosur countries.

So Germany is I think very focused on the promote and partner side, less so on the protect side.

And if you look at the rest of Europe, look to France.

France is very focused on the protect side.

So you have a bit of a Franco German divide on what the solution, proper solution is.

I think it'll be very important for Merzoue when he is in China to sort of bridge this gap, present a united European front.

I think ultimately if Chinese companies feel that they can export to Europe, they will have little incentive to invest.

It will be very difficult for Europe to deal with this overcapacity issue that you mentioned, the flood of cheap Chinese exports into Europe.

So Germany needs to, needs to embrace all three pillars, protect, partner and promote.

So we mentioned that Friedrich Martz is heading to Beijing shortly.

What advice would you give him as he packs his bags to go to Beijing?

Well, I think what Germany really needs to do is talk less about China and do more.

I think what we've seen in recent years, including in the previous German government, was this sense that if you talk tough on China, then you've done the job.

Teddy Roosevelt, the former US President, used to talk about speaking softly and carrying a big stick.

I think in the past, Germany, certainly in recent years has been talking loudly and carrying a small stick.

I think that Friedrich Meirz understands this.

So I don't think he's going to go to China sort of with all guns blazing, criticizing China publicly.

I think he will have a very tough message for the Chinese leadership behind closed doors.

But I don't think we're going to see this public criticism of China the way we saw, for example, by the previous foreign minister, Annalena Baerbock.

At the same time, we're not going to see a sort of feel good, cozy a visit like we saw from Mark Carney or Keir Starmer, the Canadian and British prime ministers.

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Germany’s China dilemma: Exports fall as competition rises | DW News

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