Germany’s Strategy to Reduce Dependency on China

In response to growing concerns over its reliance on China, Germany unveiled its first “Strategy on China” paper in July 2023. Chancellor Olaf Scholz highlighted the need to reduce dependency on China while emphasizing that the goal was not complete disconnection. Despite these efforts, German foreign direct investment in China is set to double, as reported by Bundesbank data. The strategic move comes after Germany acknowledged its vulnerability to disruptions caused by China’s dominance in the supply chain.

German Auto Sector and the China Factor

German auto manufacturers remain closely tied to the Chinese market, with significant exports and investments. Doris Fischer, an expert in China business, warned about pressuring companies into investment decisions that could harm their competitiveness. German small and medium enterprises are already diversifying their supply chains by adopting a “China plus one” strategy.

The Challenge of China Exposure

While German firms see China as a critical market, concerns linger about overreliance and vulnerabilities in case of strained relations. Germany is urged to avoid repeating past mistakes by over-relying on a single market. Investments in green technology, digital innovation, and research and development are seen as key areas to maintain competitiveness.

Global FDI Trends and the Road Ahead

Amid declining global investment in China, both the US and Germany are stepping up their engagement with the Chinese market. As Germany seeks to balance economic growth with diversification, there is a growing need for a competitive industrial strategy in the EU to counterbalance China’s economic influence.

Post edited by: Uwe Hessler