Max Zenglein Mikko Huotari
Germany’s economic relationship with China has reached an inflection point. Once marked by mutual benefit and industrial complementarity, ties are now strained by growing asymmetries, intensified competition, and geopolitical pressures. German corporates and the incoming government must face a set of strategic choices with long-term consequences and significant trade-offs. German companies and policymakers alike are being forced to reassess longstanding assumptions as economic engagement faces unprecedented political and structural headwinds.
At the heart of Germany’s China dilemma is a convergence of three complications: First, Chinese companies have accelerated their catch-up on the value chain across a broad range of industries, leading to a relative erosion of German firms’ global competitiveness. Second, China’s broad-based economic slowdown has hurt German economic competitiveness. Third, global geopolitical challenges developments, especially in the transatlantic alliance with the US, pose deep new risks and trade-offs for Germany, Europe’s largest and the world’s third-largest economy in 2024, and a country deeply invested in multilateralism and the rules-based order. It is the last complication that poses perhaps the most vexing questions for the foundations of Germany’s economic engagement with China.
Once marked by mutual benefit and industrial complementarity, Sino-German ties are now strained by growing asymmetries, intensified competition, and geopolitical pressures. The fragmentation of global tech stacks, driven by export controls, investment screening, and supply chain reconfiguration, is forcing German companies to navigate an increasingly bifurcated global economy. Meanwhile, the re-escalation of US-China economic and strategic tensions has revived and intensified the dynamics of economic decoupling.
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