China's change: From the main customer to the dangerous rival for Germany

China's change: From the main customer to the dangerous rival for Germany

In recent years, the trade landscape between Germany and China has changed significantly. While China appeared as an important buyer of German products for a long time, a worrying trend is now emerging: China could become the rival of the German market in crucial industries.

The current developments in the first quarter of 2024 could be seen as a turning point in German foreign industry. According to the Federal Statistical Office, the USA has temporarily overtaken China as the most important trading partner in Germany. From January to March, the trade volume with the United States was 63 billion euros, while China contributed just under 60 billion euros. This shock situation raises the question of whether we face a temporary phenomenon or sustainable structural change.

China's growing competition

But the decline in trade numbers is not the only warning signal. As early as 2023, exports to China were only 0.7 billion euros behind those of the United States. This indicates a creeping change in which Germany has increasingly difficulties to end up in the favor of customers as an export world champion. "Germany's largest customer becomes his greatest competitor," sums up Yanmei Xie, geopolitics analyst. Her statement reflects the concerns of many experts that China has the knowledge and economic power in order to be able to significantly influence and even displace the German market.

One of the driving forces behind this development is the strategy “Made in China 2025” initiated by XI Jinping 2015. This ambitious initiative aims to make Beijing into key technologies such as renewable energies, robotics and electric cars within ten years. To achieve this, the Chinese government relies on considerable government investments and subsidies. One example is the car manufacturer BYD, which receives two billion euros from the state every year to increase its competitiveness.

The pressure on German industry

German companies already feel the pressure, especially in the areas in which they have traditionally shown strength. According to studies, the exports of industrial machines decreased slightly between 2013 and 2023, while China's market share in this area has grown considerably. In the automotive sector, the proportion of German exports fell from 22.3 percent to 20.7 percent, while China caught up. This dramatic change in the market shares could significantly change the balance in the global competitive arena.

The aggressive subsidy policy of China not only opens up new perspectives in Germany, but is now also urging the international markets. This is particularly noteworthy, since it can even teach industry giants such as Amazon or Otto, as the example of online retailer Temu shows, which with its aggressive pricing policy conquers considerable parts of the market.

The German government already has clear signs of a possible turning turn. Minister of Economics Robert Habeck described the narrowing of the markets by China as a "dangerous tendency". Political measures, such as the introduction of punitive tariffs to subsidized Chinese electric cars, show that the EU tries to create a counterweight to China's economic advance. There are already increases of up to 38 percent in conversation if there are no mutually acceptable solutions.

The dependence on China is increasingly becoming the topic, both at an economic and security policy level. Such one -sided dependency could prove to be a tricky, especially if you think of the geopolitical tensions that could be triggered by the conflict around Taiwan.

The new business climate

The latest developments illustrate the new economic climate in which Germany has to act. With the agenda of diversifying relationships with China and less dependent on a single trading partner, German politics reacts to a reality that is characterized by uncertainties. However, many companies show the will to maintain the exchange with China, which the dilemma illustrates: a balancing act between preserving traditional trade relationships and the need to reposition itself in a changing world.

It remains to be seen how these developments will affect the German economy in the long run. The pressure, both internationally and nationally, could move the industry in unexpected directions and invent new alliances.

In order to better understand the current developments in German trade in China, it is important to look at the economic context. In recent years, Germany's dependence on China has intensified, especially in key industries such as mechanical engineering, automotive and chemical industry. This dependency is not only a question of commercial volumes, but also of added value. China has developed from a pure manufacturer and buyer of German products into a serious competitor who independently offers innovative products in many sectors.

The challenges were reinforced by the geopolitical situation, including tensions between the USA and China and the effects of the Ukraine conflict. Companies are not only faced with increased costs by energy prices, but also with uncertainties in relation to the future market development and stability of the supply chains. The fear of a military conflict between China and Taiwan is another threat that burdens the trust of the companies into the future.

China's role in the global economy

China has established itself as one of the main actors of the global economy in the past two decades. As the second largest economy in the world, China has not only enormously expanded its own consumer markets, but also significantly influenced international trade. According to the International Monetary Fund (IMF), the country will also play a central role in global trade in the coming years, which is shown in the increasingly increased trade relationships with emerging countries.

This growth dynamics has meant that many countries, including Germany, are forced to rethink their trade strategies. The German government recognizes the need for diversification and works on measures to reduce the dependence on a single trading partner, which also strengthens the focus on markets in Asia, Africa and Latin America.

Statistical insights into foreign trade

The statistical data show a remarkable change in German foreign trade. According to the Federal Statistical Office, German exports to China amounted to around 253.1 billion euros in 2023, which shows that the People's Republic has acted as a key market for years. But in the first six months of 2024, Germany exported more to Poland, which illustrates the changing trade currents.

These numbers not only illustrate the decline in exports to China, but also the growth of alternative markets. In view of the global economic situation and the aggressive subsidy policy of China, it will be crucial for the German economy to realign its strategies and to develop sustainable trade relationships.

In summary, it can be stated that the changes in Germany's foreign trade with China require a reactive strategy in a rapidly changing global economic environment. The company and government are required to face the challenges that this new competition brings.