Investments in the People’s Republic are made predominantly by companies from the manufacturing industry.
(Photo: dpa)
Berlin According to a study, the German economy is less dependent on profits in China than assumed. Between 2017 and 2021, profits of seven to eleven billion euros flowed back to Germany from the investments of German companies in the People’s Republic, according to the joint study by the Bertelsmann Foundation, the German Economic Institute (IW), and the Mercator Institute for China Studies published on Thursday (Merics) and the Federation of German Industries (BDI).
In an international comparison, China has reached a relevant size and is roughly on a par with the USA with twelve to 16 percent of the profit reflows from all over the world. However, the EU’s share is much higher at an average of 56 percent in the period under review.
For the BDI, the study is a signal of the all-clear in the discussion about excessive dependence on China, which has gained momentum with the Russian invasion of Ukraine. “The investments made by industry in China over the past four years are financed from the profits made there,” said Friedolin Strack, head of the International Markets department at the BDI. “So capital is not flowing from Germany to China on a large scale.”
The vast majority of investments in the People’s Republic are made by companies from the manufacturing industry: In 2020, 69 percent of German investments in China went to industry. Compared to other markets, investments in China are therefore particularly lucrative: almost seven percent of German stocks of direct investments abroad are in China, but around twelve to 16 percent of the profit returns come from China.
According to the study, the latter do not generate any critical dependency. This is different for individual large companies, but the information available about such company-specific geopolitical cluster risks is too sparse. “More transparency is needed here, also at the level of German companies that are particularly exposed in China,” said Jürgen Matthes, head of the Global and Regional Markets department at the IW.
Danger for future German export prospects
It is viewed critically that a clear majority of the large companies surveyed with relevant China business want to replace exports from Germany with local production by 2030. “These projects threaten to weaken future German export prospects,” said Merics chief economist Max Zenglein.
“In the medium term, this could be to the detriment of Germany as a business location and the jobs that depend on exports to China and Asia.” Just a few years ago, the common thesis was that investments in China automatically benefit Germany as a business location.
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“Today we have to realize that the trend towards the localization of production not only in China but also in other regions of the world will be at the expense of exports from Germany in the medium and long term,” said Zenglein.
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