Foreign trade German industry loses ground in competition with China
German industry is losing ground in competition with its stronger rivals from China. According to the Federal Statistical Office, German exports fell by 1.7 percent to around 1.65 trillion euros last year.
18.06.2025, 06:00
SDA
Chinese exports, on the other hand, increased by 7.1 percent to over three trillion euros (25.4 trillion yuan) according to Beijing figures, as a comparison of trade balances shows. According to economists and experts, the price wars waged by Chinese companies on their domestic market and their overcapacities pose a threat to German industry.
The sobering figures from a German perspective are not a one-off outlier. The Chinese government reported export growth for the eighth year in a row, while there was already a significant decline in Germany in 2023.
China is turning from a success factor to a risk factor for German industry
The extent to which the world has changed for German industry can be seen in many indicators. Two examples: There were 500 Chinese exhibitors at the Hannover Messe in 2014, compared to 1,145 last year. The VW Group still delivered 10.1 million cars worldwide in 2018. Last year, the figure was 8.6 million - a decline of almost 15 percent.
The main reason for this was the failure in China: the Wolfsburg-based Group delivered almost 1.3 million fewer cars there than six years previously, although the Chinese car market has grown rather than shrunk in the meantime. The e-car manufacturers there have left the Germans - and not just Volkswagen - far behind.
"By the time the People's Republic celebrates its centenary in 2049, China wants to be the technology leader, perhaps even the global technology leader," says Philipp Böing, economist and Professor of Empirical Innovation Research with a focus on China at Goethe University Frankfurt and ZEW Mannheim. "The political measures were not always efficient, but they were mostly effective."
The goal: self-strengthening
After the first economic reforms at the end of the 1970s, China's Communist Party campaigned for decades to attract foreign industrial companies, which in return had to enter into forced partnerships with Chinese companies. This was a stroke of luck for German industry, as sales figures, turnover and profits rose for many years.
However, Beijing's industrial policy was never intended to make foreign companies big and strong. From the outset, the aim was "ziqiang", or "self-strengthening". Foreign managers were generally unaware that their presence in the People's Republic was only a means to an end for the Chinese leadership. A similar strategy of self-strengthening with the help of foreign technology already existed in the 19th century - unsuccessfully at the time. At the second attempt, the race to catch up has been successful.
Apprentice trumps master craftsman
"Chinese competitors have continued to catch up and are increasingly active in product areas and industrial segments in which German industry was traditionally very well positioned," says Böing. Particularly in the areas of digitalization and generative artificial intelligence, Chinese companies have "in some cases already surpassed the technological capabilities of German competitors".
In Germany, industrial production has already been declining for ten years, says Jens Burchardt, industry expert and partner at the international management consultancy BCG. The main reason for this is energy, which is expensive by international standards. "The problem of higher energy prices will not disappear in the foreseeable future, because they are settling at a level in Germany that is significantly higher than in other countries."
Burchardt sees a threat to German industry primarily for energy-intensive sectors such as basic chemicals, and secondly for the automotive sector. "Electromobility will already account for more than half of the global market by the early 2030s. German manufacturers will only be able to maintain their current role if they play as big a role in electric drives as they traditionally do in combustion engines." Only after this, "but still materially", does the BCG see a threat from growing Chinese competition for German companies in sectors such as mechanical engineering and the electrical industry.
China's debt problem
However, Chinese success comes at a high price. Many companies have built up large overcapacities on credit. The debt of the Chinese private sector - i.e. households and companies excluding the financial sector - has reached astronomical proportions and, according to figures from the International Monetary Fund, now amounts to over 300% of China's gross domestic product, and is rising. Some economists have been warning for over a decade that a major financial crisis is lurking in China.
"Typically, the strategy of foregoing profits for a relatively long time, scaling very strongly and trying to keep competitors at bay for a few years and being one of the few surviving companies has prevailed," says economist Böing. "For a few years, it's purely a loss-making business and it's all about scaling." This means that the more units a company produces, the cheaper it is. "Production often cannot be absorbed by the Chinese domestic market and is then simply exported."
Overcapacity is "extremely dangerous" for German companies
The huge domestic market alone is an advantage for Chinese companies. "In the case of wind turbines, for example, Chinese competitors can build up a great deal of know-how and technical expertise due to the extreme expansion in their own market," says BCG consultant Burchardt. "In China, large new production capacities are being created in many technologies, forcing Chinese manufacturers into extreme price wars so that they have to find new sales markets outside of China." This is "extremely dangerous" for German companies.
Burchardt says that Germany still has a technologically leading industry in many areas. "However, it is now facing a competitor that also has a much larger domestic market for many modern technologies, can produce at a lower overall production cost level and appears to be subject to less capital market and yield pressure."
Technology competition decides system competition
The further development depends not least on the further course of the trade conflicts instigated by US President Donald Trump. "It is relatively difficult to make predictions due to the abrupt policy changes in the US," says economist Böing.
He does not expect a lasting easing of tensions: "In my view, this is due to systemic competition between China and the West, especially the USA." The success of this systems competition will be decided by the technology competition. "The tariffs are now a kind of magnifying glass with which we are looking at this. I think that in the future there will always be other types of confrontations in the area of trade, in the area of innovation competition."
