BERLIN, July 7 — The shift is unmistakable. For decades, Germany’s industrial engine — its automakers, its machine builders, its chemical giants — seemed unassailable. But a report from the German Economic Institute, combined with data from the German Federal Statistical Office, paints a stark picture of a sector under pressure from China’s state-led economic policies.
The trend underneath is a pricing war. China’s government has deployed subsidies across key industries, from steel and aluminum to solar panels, fueling overproduction that is now flooding global markets.
The result, according to the German Economic Institute, is that Chinese exports are often priced below production costs. For Germany’s manufacturers, this is a direct hit on their core business. Germany’s industrial output fell by 1.5% in 2023 compared to the previous year, according to the German Federal Statistical Office.
That figure masks a deeper structural shift. The German Economic Institute reported in 2023 that China’s share of global manufacturing value added surged from 18% in 2010 to 30% in 2021.
Over that same period, Germany’s share slipped from 6% to 5%. The sectors feeling the most heat are the ones that built Germany’s post-war prosperity. Automotive giants like Volkswagen, BMW, and Mercedes-Benz are facing pricing pressures and losing market share.
Industrial machinery stalwarts Siemens and ThyssenKrupp, along with chemicals powerhouse BASF, are in the same boat.
Brussels Steps In, Berlin Calls for a Pivot
The European Commission has taken notice. It has initiated anti-subsidy investigations specifically targeting Chinese electric vehicle imports. A decision on those investigations is expected in 2024.
German Chancellor Olaf Scholz has publicly called for a “de-risking” strategy with China. His emphasis is on diversification of supply chains — a clear signal that Berlin sees the current dependency as a vulnerability.
China’s Belt and Road Initiative, launched in 2013, has further expanded its economic influence, weaving a network of infrastructure projects and trade routes that extend Beijing’s reach far beyond its borders. The numbers from the German Economic Institute tell the story in stark terms. China’s share of global manufacturing value added rose from 18% in 2010 to 30% in 2021.
Germany’s fell from 6% to 5%.
What’s Changing on the Ground
The pressure is not abstract. For a company like Volkswagen, losing market share in China — once its most profitable market — is a double blow. The Chinese market is both a source of revenue and a launching pad for Chinese automakers now exporting to Europe.
BASF, meanwhile, is investing in a new chemical complex in China, a move that underscores the tension between accessing the Chinese market and protecting the home base. What’s changing is the calculus.
For years, German industry saw China as a growth story. Now, it is increasingly seen as a competitor. The European Commission’s anti-subsidy probe into Chinese electric vehicles is the most visible sign of this shift, but the underlying dynamics have been building for years.
The German Economic Institute’s data is a snapshot of a longer trend. From 2010 to 2021, China’s manufacturing ascent was relentless.
Germany’s relative decline, while smaller in percentage terms, is significant for an economy that has long relied on its industrial sector to drive exports and employment. The coming months will be critical. The European Commission’s decision on the anti-subsidy investigations, expected in 2024, could set a precedent for how Europe responds to China’s state-backed industrial push.
For now, German Chancellor Scholz’s call for de-risking signals that the political will to act is there.
