Asian headwind. Even key German sectors are losing ground to China

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According to a study by Allianz Trade, Germany is increasingly losing ground in key sectors and in its home turf of Europe. One reason is the increasing critical dependence on Chinese imports.

The German "export world champions" title is long past, according to a study by Allianz Trade. Because China overtook Germany in exports more than 10 years ago. The Middle Kingdom is also continuously expanding this leading position. But now the historical trade relations could increasingly be on the brink, because the German industry is also increasingly falling behind in terms of key sectors, as the study found.

Will "Made in China" be the sought-after seal soon?

"China has long left behind the level of cheap mass goods or preliminary products. The country has successively put its domestic industries on the path of significantly higher value creation," said Dr. Jasmin Gröschl, Senior Economist at Allianz Trade. The German key industries, which for years were considered a stronghold for 'made in Germany' could be overtaken. This also means that the trade relations are no longer complementary. Quite the contrary! In many industries, Chinese products are replacing the German ones. At the same time, Germany's critical dependence on Chinese imports is increasing, according to the economist.

China is increasingly gaining market share in Europe as well.

China's global export shares in key sectors such as machinery, chemicals, and electrical appliances have already overtaken Germany. While Germany's critical dependence on Chinese imports has significantly increased from 6 percent in 2004 to 22 percent in 2022. "The increasing competition is not only taking place in emerging markets," emphasized Gröschl. Even in Europe, the traditional home stadium of the German industry, Chinese companies are increasingly gaining market share. Within the European Union (EU), a whopping 10 out of 11 sectors of the German manufacturing industry have recorded a decline in export market share over the last 10 years.

The problems of German companies in China have repercussions in Europe.

In addition, shrinking sales and market shares are putting pressure on the profits of German companies operating in China. Although the Chinese market may have sour tastes for some of these companies, it remains an attractive target for large businesses' investments. But despite a five-fold increase in German direct investment in China from 2010 to 2022, companies have to cope with a revenue decline of 6.2 billion euros and a lower investment return of minus 24.8 billion euros in 2022. "Not everything that glitters is gold in China either," Gröschl makes clear. To cope with these challenges, companies reinvest their profits in China. At the same time, they have to face challenges in the home market, which partly lead to job cuts. Calls for protective measures at EU level are a result of this. In this context, political steps to reduce domestic regulatory and tax burdens and to eliminate innovation obstacles would contribute greatly to regaining competitiveness on the global stage.

However, German companies could hold their own ...

"The wind is blowing in the faces of German companies," says Milo Bogaerts, CEO of Allianz Trade in Germany, Austria and Switzerland. It is undisputed that the local economy has seen rosier times. There are thus many homework assignments for the German industry. These include reliable, plannable and competitive framework conditions. Companies should therefore already be laying the groundwork for a successful future. In particular, investments in green energy generation and research and development are now crucial for the resurgence of "Made in Germany", according to Allianz Trade. But Bogaerts is confident that German companies, with their robustness, financial strength and entrepreneurial spirit, will be able to achieve this and face international competition - including the