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| President Xi Jinping and the Chancellor Merz at a dinner - File Photo: Federal Government/Guido Bergmann |
By Sami Ahmed
TradeTrend
Published: Sept 13, 2026
BERLIN, Sep 13, 2026: German companies are putting more money into China at a time when the European Union is strengthening its trade rules and responding more forcefully to Chinese competition.
The direction of travel is striking. An analysis by the German Economic Institute (IW) based on Bundesbank data found that German companies invested around €7 billion in China in 2025, above the €4.5 billion recorded in each of the previous two years. At the same time, official German trade data show that imports from China rose 6.2% in the first five months of 2026, while German exports to China fell 14.5%, leaving a €42.8 billion import surplus.
Exports: €29.6bn
Import surplus: €42.8bn
The imbalance is becoming harder to ignore. China remained Germany's most important trading partner in the January-May period, with imports reaching €72.4 billion and exports €29.6 billion. Yet German companies are not responding by simply pulling back.
The German Chamber of Commerce in China (AHK Greater China) reported that 56% of surveyed German companies were considering greater engagement with Chinese partners. The main motivations included scaling up their China business and adapting to the speed of the Chinese market.
At the same time, the German Chamber of Industry and Commerce (DIHK) found that two-thirds of German companies increasingly feel competition from Chinese firms. Yet 88% said withdrawing from contested business fields was not an option. Separately, 55% supported or somewhat supported stronger EU measures against market distortions, even if such measures could increase costs or create other negative consequences for their businesses.
That combination — more investment, stronger competition and support for selected EU measures — points to a relationship that is becoming more complicated rather than simply weaker.
Why China still matters to German business
German companies have several reasons to remain interested in China, beginning with the size of the market and the importance of China to their existing operations.
The German Chamber of Commerce in China says the main reasons for deeper cooperation with Chinese companies include scaling up China-based business and adapting to the pace of Chinese innovation. Sixty percent of surveyed companies expect Chinese firms to become innovation leaders, while 68% are already engaged with Chinese companies expanding abroad.
For companies already operating at that scale, leaving China is therefore not equivalent to simply stopping new sales. It can mean abandoning production networks, suppliers, research capabilities, customer relationships and accumulated market knowledge.
The AHK's latest survey also points to a more complicated form of engagement. German companies are increasingly working with Chinese firms not only to sell in China but also to use Chinese partners, technology and market knowledge in international operations.
A trend that predates the latest tariff cycle
The expansion of German business engagement with China did not begin with the latest round of US tariffs. The longer record points to a much earlier relationship. The Bundesbank has shown that German direct investment in China generated high returns and that much of the increase in recent years came from profits being reinvested locally rather than from entirely new capital being transferred from Germany.
The pattern was already visible before the current tariff cycle. Bundesbank data recorded €12 billion of additional German direct investment in China in 2022, with the increase entirely attributable to reinvested earnings.
The timing matters because it makes a simple tariff explanation inadequate. US and EU tariff policies have influenced corporate decisions, but German companies were already deeply embedded in China before the latest escalation in trade restrictions.
The AHK's 2025 flash survey also showed that the later tariff escalation affected investment strategies without ending them: 38% of surveyed German companies said they wanted to accelerate localisation in China in response to the trade conflict.
Demand, competitiveness and China's industrial model
The attraction of China cannot be separated from the way the Chinese economy has changed. German companies still see China as a major consumer market, but they increasingly encounter Chinese competitors capable of producing, innovating and scaling at high speed.
The German Chamber of Commerce in China (AHK Greater China) found price pressure to be one of the largest business challenges for German companies in China, while weak domestic demand and the growing “Buy China” trend were also significant concerns.
The German Chamber of Industry and Commerce (DIHK) provides another side of the picture. Two-thirds of German companies surveyed by DIHK reported increasing competition from Chinese companies, with the pressure particularly strong in industry. Companies with investment or production locations in China reported especially strong competition inside the Chinese market.
DIHK's findings point to an interaction between existing demand and the development of Chinese industrial capabilities rather than a simple story in which Chinese industry merely filled a pre-existing European demand. The chamber says Chinese providers have increasingly become technologically strong and internationally competitive, while German businesses are responding through innovation, cost reductions, new markets and cooperation.
The AHK Greater China Business Confidence Survey 2025/26 reported that knowledge transfer is moving in both directions: German headquarters transfer knowledge to Chinese subsidiaries, while Chinese subsidiaries increasingly transfer knowledge back to headquarters.
AHK's innovation analysis further describes China as a market where German companies can develop and test products, noting that 29% of German companies were already researching innovative solutions in China for global markets.
Taken together, the DIHK and AHK evidence shows China occupying several positions at once in the German business relationship: a major market and production base, an increasingly important innovation environment and partner, and a source of growing competitive pressure.
The supply chains Europe built around China
China's position in European supply chains also helps explain why German companies remain engaged. The European Commission's China trade profile shows that manufactured goods accounted for 97.3% of EU imports from China in 2025, with machinery and vehicles representing 54.4% of those imports alongside significant volumes of data-processing and electrical equipment.
The dependence is particularly visible in technology-intensive products. Destatis data on German trade with China show China supplying very large shares of German imports of portable computers, smartphones and lithium-ion batteries, alongside substantial shares of photovoltaic cells and modules and electric passenger cars.
The broader European pattern is also documented by Eurostat's high-tech trade data. In 2024, China accounted for 30% of the EU's high-tech imports from outside the bloc, worth €141 billion, with electronics and telecommunications accounting for the largest share of high-tech imports from China.
The historical supplier picture was more geographically dispersed. Eurostat's high-tech trade data show that the EU's other major sources of high-tech imports in 2024 included the United States, Switzerland, Taiwan, Vietnam and the United Kingdom, while the European Commission's China trade data show the scale to which China has become embedded in the EU's current manufactured-goods import structure.
China's rise therefore has to be viewed alongside the development of international production networks rather than as a development separate from European demand. The European Commission's Joint Research Centre research on EU-China trade examines the growth of EU imports from China at product level and the degree of import concentration across European economies.
What German investment actually represents
German investment in China therefore represents more than a bet on Chinese consumer demand. Part of it is market-seeking investment. Part is production close to customers. Part is supply-chain integration. Part is localisation designed to compete with increasingly capable Chinese companies. And part reflects the reinvestment of profits generated by German subsidiaries already operating in China.
The Bundesbank reported that German direct-investment stock in China stood at €110 billion at the end of 2024, down from €115 billion in 2023. Total German outward FDI stood at €1.689 trillion, with €857 billion located in Europe and more than €460 billion in the United States.
The figures therefore do not show German capital abandoning Europe for China. They show a large and established China position within a much larger global investment network. That distinction becomes important when considering the wider European picture.
Germany is part of a wider European pattern
Germany is not alone in maintaining significant economic exposure to China. The broader European investment picture shows that Chinese capital is also moving into several EU economies. Research by MERICS and the Rhodium Group found that Chinese FDI in Europe — the EU and UK combined — rose 67% in 2025 to €16.8 billion, the highest level since 2018.
Germany received €2.5 billion of Chinese investment in 2025, placing it behind Hungary at €3.9 billion. France received €1.9 billion and Spain €1.5 billion. The sectoral concentration is also significant. Chinese investment in Europe's automotive sector reached €7.6 billion in 2025, with most of that investment directed toward the electric-vehicle supply chain.
The investment figures do not mean all EU governments have the same China policy. They show instead that commercial exposure is spread across several member states, with different sectors and national interests shaping their positions.
Trade remains larger than the political relationship suggests
The scale of trade provides another measure of Europe's continuing economic relationship with China. According to Eurostat's 2025 EU-China trade data, the EU exported €199.6 billion in goods to China in 2025 and imported €559.4 billion, producing a €359.8 billion goods deficit. Compared with 2015, EU exports to China were 37.1% higher while imports were 89% higher.
The scale of the relationship therefore sits alongside the EU's growing concerns about Chinese industrial policy, market access, subsidies, technology restrictions and economic security. This is not a relationship that can easily be reduced to either cooperation or confrontation.
Germany's position within Europe's China exposure
Germany remains one of the central European economies in the relationship with China because of the scale and structure of its industrial exposure. The Deutsche Bundesbank's analysis shows that almost 30% of German direct investment in China is concentrated in the automotive sector, followed by machinery and chemicals.
Managing this heavy industrial exposure has increasingly become a European-level issue. The European Commission's 2026 foreign-investment screening framework requires all EU member states to maintain screening mechanisms across critical technologies, raw materials, transport, and energy.
The economic effects of that exposure can also differ across industries. The European Central Bank's analysis of China's industrial rise finds that greater Chinese import penetration can reduce input costs and prices for some euro-area producers while displacing production through stronger competition in other sectors.
The business perspective adds another layer. The DIHK's September 2026 survey already found that majority of German companies supported or somewhat supported stronger EU measures against market distortions, even if such measures could increase costs or create other negative consequences for their businesses. Separately, 88% said withdrawal from contested business fields was not an option.
The EU's legal room to act
The EU already has legal instruments for responding to trade distortions and economic pressure. Article 207 of the Treaty on the Functioning of the European Union places tariffs, trade agreements, foreign direct investment and trade-defence measures within the Union's common commercial policy.
The European Commission's Anti-Coercion Instrument, which entered into force in December 2023, provides another mechanism when a non-EU country uses or threatens economic measures to pressure the EU or a member state over a policy choice. The regulation provides for assessment, engagement with the third country and, where necessary, proportionate response measures.
The European Council on Foreign Relations (ECFR) argues that the EU's economic leverage is strongest when measures allow the costs of a response to be shared across member states and industries. Its earlier analysis also warned that economic coercion can exploit divisions within the EU and place disproportionate pressure on individual member states or businesses.
When member states disagree
The 2013 solar-panel dispute exposed divisions over how strongly the EU should respond to Chinese imports. The European Commission's trade-defence record shows that the anti-dumping investigation began in 2012 and that provisional measures were introduced in June 2013. In July, the Commission announced a negotiated price undertaking with Chinese solar-panel exporters.
A similar division appeared during the EU's electric-vehicle investigation. The European Council on Foreign Relations (ECFR) recorded that 10 member states supported the definitive tariffs on October 4, 2024, 12 abstained and five, including Germany, voted against. The Commission subsequently imposed five-year countervailing duties ranging from 17% for BYD to 35.3% for SAIC and non-cooperating companies.
These internal political splits highlight the delicate line trade regulators must walk. According to the DIHK, German businesses want Europe to use existing trade instruments against demonstrable market distortions, but expect policymakers to avoid defensive measures that unintentionally harm their international competitiveness.
Defensive action without economic separation
The EU's Anti-Coercion Instrument illustrates how defensive measures can be combined with continued engagement. The European Commission's Anti-Coercion Instrument framework provides for examination and engagement with the third country before response measures are adopted, with countermeasures available only as a last resort and subject to proportionality and consideration of economic effects.The electric-vehicle case also left room for negotiated alternatives. The Commission continued discussions over price undertakings alongside the definitive duties, and in 2026 issued guidance for companies seeking to submit such offers.
This approach reflects the European Commission's broader strategic framework, which simultaneously designates China as a partner, competitor, and systemic rival. The dual approach acknowledges that even as trade friction grows, total EU-China goods trade remains immense—reaching €732 billion in 2024.
What the precedents reveal
The Lithuania-China dispute provides another example of an individual member state's commercial dispute being pursued at EU level. The European Commission says China imposed discriminatory measures against Lithuanian exports and EU products containing Lithuanian content from December 2021, while Chinese customs data showed Lithuanian exports to China falling 80% between January and October 2022. The EU subsequently brought the dispute to the WTO.The WTO records that the EU terminated the dispute in November 2025 after notifying the WTO that its key objectives had been met and relevant trade had resumed. The case therefore provides a concrete precedent for using an EU-level legal channel while the underlying commercial relationship continues.
