Germany and China Meet Amid Trade Imbalance
German Chancellor Friedrich Merz met with President Xi Jinping in Beijing to address significant trade imbalances, with Chinese imports to Germany more than double the volume of German exports last year. While minor agreements on agricultural products were reached, structural issues around fair market access and industrial overcapacity remain unresolved. The meeting highlights Europe's ongoing efforts to recalibrate its economic relationship with China amid broader geopolitical friction.
- For the eighth consecutive year, China was Germany's most important trading partner in 2023, though the trade volume of €253.1 billion was only slightly ahead of the United States. This reflects a significant trade deficit for Germany, which reached a record €87 billion in 2025, driven by a surge in Chinese exports of capital goods and a decline in German exports to China. - The European Union has launched an anti-subsidy investigation into Chinese electric vehicles (EVs), which could result in tariffs of up to 35.3%. However, the German Association of the Automotive Industry (VDA) opposes these tariffs, arguing they would not solve competitive challenges and could risk German jobs tied to the Chinese market, where German carmakers sold approximately 10 times as many electric cars as Chinese brands sold in Germany in 2023. - In response to increasing competition and a "Buy China" trend, German companies are intensifying their "in China for China" strategy. This involves deep localization of R&D and production, with 93% of German firms planning to maintain or expand their China operations. For example, Volkswagen and BMW are each investing an additional €2.5 billion in their Chinese innovation and production hubs. - German industrial sectors, including machinery and chemicals, face severe competitive pressure from Chinese firms, which is exacerbated by state subsidies and industrial overcapacity in China. A recent survey showed that nearly two-thirds of German industrial companies with Chinese competitors view this pressure as a significant challenge, leading to loss of market share, production cutbacks, and layoffs. - Regulatory and market access barriers remain a key concern for German businesses in China. A survey by the German Chamber of Commerce identified local protectionism and preferential treatment for local firms as top challenges. Additionally, all companies in China, including foreign firms, are subject to the Corporate Social Credit System (SCS), which tracks and rates business compliance and can result in blacklisting and sanctions for violations. - Intellectual property (IP) protection continues to be a challenge, with two-thirds of German companies reporting issues in China. While China has specialized IP courts where foreign plaintiffs have a high success rate, challenges remain, including procedural barriers, uneven enforcement, and the difficulty of enforcing judgments against infringement.
