Germany’s economy increasingly dependent on China (report)
According to a report prepared by the German Economic Institute (Institut der Deutschen Wirtschaft, IW), the country’s economy has become more dependent on China in the first half of 2022. Direct investment and its trade deficit are reaching new heights, despite the political pressure on Berlin to move away from Beijing.
At the same time, the growth of German exports to China has slowed considerably, which economists explain by a trend towards more local production in the Chinese market.
“The German economy is much more dependent on China than the other way around,” said Jürgen Matthes, the study’s author.
Beijing’s lukewarm stance on the war in Ukraine and its aggressive military posture toward Taiwan have placed German companies doing business in China under scrutiny.
“Yet, despite these dangers and problems, economic interdependencies with China moved in the wrong direction at a breakneck pace in the first half of 2022,” Matthes said.
China’s share of German imports rose to 12.4% in the first half of 2022 from just 3.4% in 2000. German imports of Chinese goods, in turn, increased in value by 45.7% year-on-year in the same period. period of the first six months. Germany’s trade deficit with the country had jumped to nearly 41 billion euros by mid-2022. The IW predicts that the trade deficit will only grow.
The study also found that German investment in China amounted to around 10 billion euros between January and June, far exceeding the previous semi-annual peak recorded since the start of the millennium of 6.2 billion euros.
“The Chinese sales market and the earnings expected there in the short term just seem too attractive,” Matthes said.
The Economic Institute report calls for a change in policy, in particular a reduction in incentives to do business with China and a move towards more trade with other emerging markets, particularly in Asia. Matthes also called on German companies to reduce their dependence on China. As he warns, any Western sanction imposed on Beijing, for example in the event of an invasion of Taiwan, would threaten particularly exposed companies with bankruptcy.
“Otherwise we risk finding ourselves in a ‘too big to fail’ situation as we have seen with the banks,” he said.