German companies have significantly increased their investments in China in the first six months of 2026, despite the European Union's policy to limit dependence on Beijing. The data shows how difficult it is for German industry to balance strategic “risk reduction“ and the need to remain competitive in the largest Asian market.
According to an analysis by the German IW Economic Institute, based on Bundesbank data, German companies invested 5.6 billion euros more in China in the first half of the year compared to the same period last year. This represents an increase of around a third. At the same time, their investments in the US have shrunk by almost two-thirds to approximately 4.3 billion euros.
The trend shows that China continues to be both a key market, a production center and a source of competitive pressure for German industry. According to IW experts, companies have practically no easy alternative - they must be present on the Chinese market if they want to maintain their positions both there and against their Chinese competitors in third countries.
The reasons are not only the scale of local demand. Chinese manufacturers benefit from highly developed supply chains, lower costs in a number of sectors, government support and a competitive exchange rate. This allows German companies to use local production not only for the Chinese market, but also as a tool to improve their own price competitiveness.
The problem is that this strategy also carries risks for Germany itself. Greater investment in China could mean exporting production, technology and jobs outside the country. That is why there are growing calls in Berlin and Brussels for more active measures against subsidized Chinese imports and against market practices that European companies define as unfair.
The pressure on German business is already tangible. According to a recent survey by the German Chamber of Industry and Commerce DIHK, 83% of industrial companies feel increased competition from Chinese manufacturers. However, 88% do not plan to withdraw from the affected markets. Instead, they are looking for higher efficiency, cost reduction, innovation and new markets.
At the same time, the trade imbalance between Germany and China is deepening. Imports from China have increased, while German exports to the Chinese market have decreased, further increasing concerns about the loss of industrial positions.
At the European level, the debate is intensifying. Germany and France are already working on a common approach to relations with China, and the EU is discussing additional protective instruments against Chinese imports in sensitive sectors. Italy is also pushing for tougher measures in the automotive industry, including significantly higher tariffs on Chinese cars and components.
The situation is particularly tense in the automotive sector, where Chinese companies are making rapid progress in electric vehicles and batteries. European manufacturers are under pressure from lower prices and a faster technology cycle in China, while production in Europe remains more expensive. Analysts warn that the loss of positions in the automotive industry could also have consequences for related sectors such as steel, chemicals and mechanical engineering.
This leaves German businesses with a difficult strategic choice: to invest more in China to remain competitive, but without weakening the production base in Europe. It is this balance that is likely to be one of the key issues facing German and European industrial policy in the coming years.