Reducing dependence on the all-powerful trading partner China, diversifying trade relationships in important sectors and spreading investments more broadly – this has often been demanded by political representatives in recent months. De-risking, i.e. reducing risks, is one of the most important keywords in the federal government’s China strategy. The background is the danger of a war on Taiwan, which could lead to sanctions against Beijing similar to those against Russia as a result of the Ukraine invasion and disrupt supply chains.
Now, however, comes a report that initially seems to contradict this strategy. According to a study, there was a record number of German direct investments in China last year. They totaled 11.9 billion euros in 2023, an increase of more than four percent compared to the previous year.
The study comes from the employer-related Institute of the German Economy (IW) in Cologne and is based on figures from the Bundesbank. “This is a new high – after already high values in the previous two years,” said IW expert Jürgen Matthes. From 2021 to 2023 alone, German companies would have invested just as much in China as in the years 2015 to 2020.
Split picture when it comes to engagement with China
China’s share of all foreign direct investment in the German economy increased last year and amounted to 10.3 percent. This is the first time since 2014 that it has exceeded the ten percent mark. This also has to do with the fact that the value of German direct investments abroad fell from almost 170 billion to 116 billion euros.
According to the IW, there is a mixed picture when it comes to the involvement of German companies in China. “On the one hand, there are the new investments in China as a whole, which in the overall view are financed solely from the profits generated there,” said Matthes, who heads the international economic policy, financial and real estate markets department at the IW. “On the other hand, there have obviously also been withdrawal movements from China in the last four years.” This is shown by the negative values for the “other components”, among which equity capital usually plays a special role. A previous IW study with values up to 2022 shows that in recent years more company investments in China have been reduced than new ones have been built up through money flows from Germany.
The Bundesbank’s figures did not allow a more precise insight into this point. However, according to Matthes, it can be assumed that “there is still a division between a few large companies” that are still heavily involved in China and “the majority of medium-sized companies” that tend to withdraw.