Germany: Survey shows dependence on China growing ‘rapidly’

The German economy’s dependence on China grew further in the first half of 2022, with direct investment and the trade deficit climbing to new record highs, despite political pressure on Berlin to moderate its reliance on Beijing, Reuters reports. citing relevant research by the German Economic Institute (IW).

At the same time, growth in German exports to China slowed significantly, IW research shows, as Beijing boosts domestic production.

“The German economy is much more dependent on China than the other way around,” said the head of the research, Juergen Matthes.

The research warns that this dependence of the German economy is a political problem, as Beijing’s stance on the Ukraine war and tension with Taiwan pose risks for German businesses.

“However, despite these risks and problems, economic interdependence with China moved in the wrong direction at a rapid pace in the first half of 2022,” the research notes.

China’s share of German imports rose to 12.4% in the first half of 2022, compared with just 3.4% in 2000, while German imports of Chinese goods jumped in value terms by 45.7%, from half a year earlier, according to the survey.

Germany’s trade deficit with China has climbed to close to 41 billion euros by mid-2022, with IW warning that this deficit is expected to widen by the end of the year.

In this context, the Institute highlights the need for policy change, with a first step being to reduce incentives to do business with China and shift the weight to trade in other emerging markets, particularly in Asia.

The Institute is also calling on German companies to reduce their dependence on the Chinese economy, warning that in the event of sanctions against Beijing, in the event of China’s invasion of Taiwan for example, many companies will find themselves facing the risk of bankruptcy.

“Otherwise, we risk facing the dilemma of ‘too big too fail’ as happened with banks in the past,” the research notes.