German businesses have invested proportionately more in China this year than ever, despite government pledges to reduce dependence on trade with Beijing.
In the first half of 2023, 16.4% of German foreign direct investment (FDI) went to China, a study by the German Institute for Economic Research (IW), seen by Reuters, has found.
“[China] has never been this important compared to other countries,” Jürgen Matthes, an expert for global markets at the institute, claimed.
In 2022, only 11.6% of German FDI had been invested in China, which was already more than double the share in 2019, before the pandemic.
The study’s results go against pledges previously made by the German government, which made a point of “de-risking” trade relations with China, its largest trading partner.
“A concentration on a few countries or only one country of origin (…) can give rise to dependencies in critical areas,” the government had warned in its first-ever China strategy, published in July.
Germany thus promised to “promote the diversification of our economic relations” to “[reduce] our dependence in critical sectors”.
“A diversification away from China has not happened. On the contrary: [its] importance vis-a-vis the rest of Asia has increased even more,” Matthes observed, noting that most of the capital flows were profits generated and re-invested in the People’s Republic.
In absolute terms, Germany’s trade volume with China has declined compared to last year, reflecting a general decline in FDI, IW found. Nevertheless, the numbers represented the second-highest level on record.
By contrast, the German economy made rapid progress about the decoupling from Russia, which has also been geopolitically motivated in response to its invasion of Ukraine.
Russia, which was Germany’s 14th largest bilateral trading partner before the war, has dropped to number 36 within one year, the German Eastern Business Association, a German business alliance, announced on Tuesday.
Germany had previously imported much of its natural gas from Russia, contributing to a high trade volume with the country. However, because of sanctions, Moscow halted deliveries to EU countries in August 2022.
(Nick Alipour | Euractiv.de)
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