MNI INTERVIEW: German FDI In China To Remain Strong - Chamber

German FDI into China is expected to remain strong in the coming years, led by a small number of firms seeking to hedge against the U.S.-China trade war and stay competitive with local rivals, while smaller Mittelstand companies hold back due to rising geopolitical risks and increasingly complex supply chains, a German industry leader in China told MNI.

Large automotive and chemical firms already present in China plan to intensify efforts to establish locally sufficient supply chains and expand R&D facilities to by-pass trade tensions, said Oliver Oehms, executive director and board member of the German Chamber of Commerce in North China, citing its recent survey that showed 50% of members planned to increase investment in China. 

According to research firm Rhodium Group’s latest figures, German FDI reached EUR7.3 billion in H1 2024, surpassing the EUR6.5 billion invested throughout all of 2023 and accounting for 57% of total EU flows into China.

The trade war will further deter German SMEs from entering China, despite positive headline FDI figures, as local competition intensifies and interest from smaller firms – already dwindling over the past three to four years – continues to decline, Oehms said.

“If companies now need two or three separate supply chains to side-step trade tensions, smaller firms will pursue a more cautious and domestic-focused strategy,” he added, noting Berlin’s recently created EUR500 billion off-budget infrastructure fund will further encourage SMEs to stay home. 

“Meanwhile, U.S. government warnings about engaging with geopolitical adversaries – once limited to Iran and Russia, but now increasingly including China – further undermines confidence of SMEs coming here,” he added.

EU MIXED

The trade war had also led to greater engagement between the chamber and Beijing, as Chinese officials seek to strengthen ties with Europe, Oehms continued. “We’re now invited to high-level meetings weekly, previously this happened only a few times a year,” he said. “Officials are increasingly asking ‘what do we need to do to attract new entrants from Germany?’” 

However, waning sentiment in Germany could temper China’s increased engagement, he added, highlighting the growing complexities in the Beijing-Berlin-Brussels dynamic.

The chamber was lobbying in Berlin to promote partnerships with China, urging policymakers not to view Beijing solely as a systemic rival, following signals from Chancellor Friedrich Merz’s new coalition agreement indicating a tilt toward stronger U.S. engagement, he noted.

“With China now surpassing domestic firms in certain sectors, we need to see China as a partner and not just a rival,” he continued, adding geo-politics risked overshadowing the economic interests of chamber members.

However, European Commission President Ursula von der Leyen – a former senior figure in Angela Merkel’s Christian Democratic Union – struck a more conciliatory tone ahead of her planned visit to Beijing in July, which Oehms said helped balance the coalition’s more hawkish stance.