Moosburg, August 25 — German companies are under mounting pressure to adapt as China challenges them in their traditional strength of producing advanced, highly engineered machinery and exports. The heart of the German economy has long been making and exporting big-ticket, complex goods — cars, locomotives, factory machinery, aircraft, and construction equipment — but that growth model now faces serious competition from Chinese exports that often match or approach German quality while selling for far less.
The sluggish economy has made Chancellor Friedrich Merz’s governing coalition unpopular ahead of an election scheduled for Sunday in the eastern region of Saxony-Anhalt, where the far-right Alternative for Germany has its best chance yet of winning its first state governor. German companies once reaped fat profits selling to China, but the tables have turned as Beijing supports companies in targeted sectors, often where German firms make competing goods.
The China Shock
Economists call this the “China shock,” and it is emerging as a key reason for Germany’s chronic economic stagnation since the COVID-19 pandemic. With China’s domestic economy tepid, Chinese goods cannot find enough buyers at home and are shipped to foreign markets, including Europe. A visible example of the shift is a vehicle of Chinese manufacturer EP Equipment parked at the assembly line of forklift and warehouse manufacturer Jungheinrich in Moosburg, Germany, illustrating how Chinese firms are now competing directly in sectors where German companies once dominated.
Germany’s economy — Europe’s biggest — has stagnated for several years, shrinking in 2023 and 2024 and showing only 0.2% growth last year. The unemployment rate stands at 4%, lower than the EU average, but Germans face unsettling headlines about job cuts at iconic companies.
Volkswagen’s finance chief, Arno Antlitz, said costs must come down “in an environment where the Chinese total market is down by 20%, and Chinese competitors are increasing exports and thereby competitive pressure in Europe.”
Job Cuts and Inflation
There have been significant job cuts at major German companies, including 50,000 at Volkswagen, with media reports of plans for more, 8,000 buyouts at BMW by the end of next year, and a reduction of 13,000 at auto technology firm Bosch by 2030. Inflation has run ahead of wage increases after the pandemic, with last year’s real wages only just catching up to where they were in 2019.
German companies must now find ways to reduce costs and increase competitiveness in order to survive in a market where Chinese exports are becoming increasingly dominant. As the German economy continues to stagnate, it remains to be seen how companies will adapt to the changing market conditions and what impact this will have on the country’s economic future.
The pressure from Chinese exports is having a significant impact on German companies, and the “China shock” is a major challenge for Germany’s economy, one that will require a significant response from companies and policymakers alike.
Looking Ahead
As the election in Saxony-Anhalt approaches, all eyes will be on the outcome and what it may mean for the future of Germany’s economy. For now, German companies must focus on finding ways to reduce costs, increase competitiveness, and adapt to the changing market conditions in order to survive and thrive in a world where Chinese exports are becoming increasingly dominant.
