Dependence on China: German corporations are increasingly investing in the Far East

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Photo: FABRIZIO BENSCH / REUTERS

Despite the political debate about reducing possible dependencies (so-called de-risking), German direct investments continue to go to China on a large scale, according to a study. Companies invested 10.3 billion euros there in the first half of the year. This is the result of an analysis by the Institute of the German Economy (IW), which was available to the Reuters news agency.

In absolute terms, this figure represents a slight decline from the record level of twelve billion euros in the first six months of 2022. However, it was still the second-highest value ever recorded. In principle, however, a certain growth in investment sums over longer periods of time is not unusual per se, for example due to inflation. In all the first half of the year between 2010 and 2020, however, no more than half as much new investment was made in China, usually even significantly less. "So the drive to China is still at a high level." More importantly, China's share of all German direct investment flows abroad climbed to 16.4 percent. "The country has never been so important in relation to the rest of the world," said IW expert Jürgen Matthes.

Even stronger focus on China

This is because China's share of total foreign investment was only 2022.11 percent in the first half of 6 and 2019.5 percent before the corona crisis in 1. By contrast, total German direct investment flows abroad fell to 2023 billion euros in the first half of 63, significantly lower than in the same period last year (104 billion euros). "Overall, the trend towards China is largely unbroken this year as well," Matthes said. Although the German economy as a whole is investing much less in foreign countries, new direct investment in China remains almost as high as before." Most of the money comes from profits made in China and then reinvested.

The share of the rest of Asia was just under nine percent in the first half of the year that has ended. The IW researcher described this as comparatively high – "but not exceptionally high either". China's share, on the other hand, has risen significantly and is much higher. "So there has been no diversification away from China, on the contrary: China's importance relative to the rest of Asia has increased even further." Overall, it is remarkable that almost a quarter of German direct investment has recently flowed into Asia.

The German government is insisting on "de-risking" business with China, Germany's most important trading partner. This is intended to avoid dependencies in key industries. German Chancellor Olaf Scholz has repeatedly called on companies to position themselves more broadly in supply chains and to cooperate more with other Asian countries on exports and imports, for example.

dpa/Reuters