MNI INTERVIEW:German-China FDI To Fall In 2024 - Snr Trade Rep

De-risking and the diversion of capital to the U.S. could see German foreign direct investment into China fall next year to below the pre-Covid level of EUR5.5 billion after reaching a near record high of EUR10.3 billion in H1 this year, a senior trade representative told MNI.

German companies want a more levelled playing field with Chinese competitors, noted Jens Hildebrandt, chief representative at the Delegation of German Industry & Commerce in Beijing. ”The market share of German companies in their traditional strongholds has declined as Chinese firms have developed,” he said, adding a level playing field would ensure relations stabilised.

European Union President Von Der Leyen visited Beijing this week with market access and trade issues a major focus. The EU has started investigating China's electric-vehicle subsidies and could double tariffs to 20%, a move that may persuade China to move some production to the EU. (See MNI: China Plans EU EV Production To Avoid Trade War)

Hildebrandt said car production supply chains were complex and difficult to draw clear national lines. About 60% of German carmakers in China supplied Chinese manufactures, he noted. “I think the probe could result in Chinese car manufacturers moving production to the EU,” he said.

Direct investment liabilities, an important FDI indicator, recorded its first quarterly deficit of USD11.8 billion in Q3, suggesting foreign companies were likely pulling money from China instead of reinvesting. (See MNI: China Should Buoy Growth To Woo Hesitant FDI - Advisors) Analysts, however, have pointed to the high German FDI as evidence of China's ability to attract foreign investment.

“The long lead time of FDI decision making means high-value investments made by German companies this year were committed before external factors such as geopolitical tensions and years of strict Covid control came into play, therefore, this year’s investments are not indicative of future trends,” he added.

FDI into China will continue to fall despite Beijing's efforts to support investment, Hildebrandt argued. “We need to be realistic on what can be achieved under China’s policy of self-sustainability,” he said. “Established firms will still bring FDI investment into China to access demand and keep up with the local competition, but new entrants are not as interested as the trouble outweighs the benefits."

Premier Liqiang recently called on foreign firms to resist decoupling, which followed several government initiatives to support FDI, such as greater high-level engagement and improved market access.