According to an IW study, the German economy is much more dependent on China than vice versa.
(Photo: dpa)
Berlin In the first half of 2022, Germany made itself even more economically dependent on China than before. “The German direct investment flows to China have never been so high,” says a study by the German Economic Institute (IW), which was available to the Reuters news agency on Friday.
Imports from China and the German deficit in trade with the People’s Republic also reached record levels. On the other hand, the growth of German exporters in China business weakened sharply. According to the IW economists, the Chinese market will apparently increasingly be served by local production instead of by exports. “Fewer exports mean fewer direct jobs in Germany,” study author Jürgen Matthes told Reuters.
The IW warns that the German economy is much more dependent on China than the other way around. In view of the Chinese behavior in the Ukraine war and Beijing’s massive threats to Taiwan, this is becoming a political problem.
Should there be extensive sanctions by the West against China after the People’s Republic of Taiwan invades, massive bottlenecks in many supplies from China are threatened due to the high import dependency. “In the case of German companies that are particularly exposed in China, the then foreseeable collapsing business in China could possibly even lead to bankruptcy due to losses on the sales side.” bring existential distress.
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Despite these dangers and problems, economic ties with China developed “in the wrong direction at an enormous pace in the first half of 2022.” According to balance of payments data, the German economy invested around ten billion euros in China between January and June alone.
German companies rely on the Chinese market
Since the turn of the millennium, the highest value in the first half of the year was only 6.2 billion euros. Despite geopolitical risks, German companies would rather have relied more on China than less. “The Chinese sales market and the short-term profits there appear to be simply too attractive.”
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In addition, China is becoming increasingly important as an importer for Germany. The share of imports from China in all imports climbed to 12.4 percent in the first half of 2022, after only 3.4 percent in 2000. The value of German goods imports from China rose sharply by 45.7 percent within a year. However, this is also due to a significant increase in the price of products, especially chemical products.
As imports from China increased, but German exports there weakened, the trade deficit climbed to almost 41 billion euros by mid-2022. “The imbalance in trade with China is increasing,” warned the IW.
The institute, which is close to employers, is therefore calling for a change in policy, which should quickly reduce existing incentives for involvement in China. There also needs to be more diversification and building trade and investment relationships with other emerging economies, especially in Asia. In addition, politicians should encourage companies with “high risk exposures in China” to implement appropriate risk management. “Otherwise we risk running into a ‘too big too fail’ as with the banks,” emphasized study author Matthes.
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