MNI INTERVIEW: German FDI In China To Remain Robust Next Year
MNI (BEIJING) - German FDI into China will remain robust in 2025, but primarily driven by a handful of German multi-nationals concerned about intensifying local competition and insecure supply chains amid heightened geopolitical risk, an industry leader has told MNI.
Oliver Oehms, executive director at the German Chamber of Commerce in China, cautioned against judging H1's solid EUR7.3 billion of German FDI as a return to pre-Covid levels of optimism, highlighting research by Rhodium Group that showed total German FDI into China in the first half already exceeded the entire of 2023's EUR6.5 billion.
German firms, particularly carmakers, facing stiff local competition and trying to insulate their supply chains from trade tensions drove H1's outperformance, Oehms said. This contrasted with the pre-Covid era when investment came from a range of sectors based on a positive domestic demand outlook, he added.
The Chamber's recent survey found 65% of automaker members believed Chinese firms would become industry leaders within five years, and 50% of all participants cited increasing domestic rivalry as a factor behind reducing or canceling investment, up 9.4 percentage points from 2023.
Overall FDI into China from January to October declined 29.8% y/y to CNY693.2 billion, according to the official Ministry of Commerce data.
NOT LEAVING
Only 32% of companies expect their industry to improve next year, a record low, Oehms added, with concerns over Chinese domestic demand ranking highest amongst members' operational concerns.
“Despite the poor outlook our companies are still making money,” Oehms stressed, highlighting that 92% of members plan to remain in China over the next two years. However, sector disparities had widened, with auto and infrastructure depressed, offset by upbeat pharmaceutical and green-technology companies, he continued.
“Chinese firms are making close to 60% of the world’s windmills – many of them produced locally, but there's a lot of German technology and components used in the supply chain,” Oehms said, illustrating opportunities within the industrial chain as Beijing increases its dominance in high-end final manufactured goods assembly.
EXPORTS
China’s manufacturing-led post-Covid recovery had also increased the nation's attractiveness as an export hub, especially amid weak domestic demand, which encouraged members to stay, Oehms explained. “We have seen the local-for-global share of member’s production in China increase to 30% from around 20% in 2019,” he said, noting high German energy costs and labour shortages drove activity to China.
President-elect Donald Trump’s potential trade war with Beijing had also led Chinese partners and officials to increase engagement with German firms in recent months, Oehms added. The stronger interest could accelerate the Chamber’s long-running call for SOE reform, more liberalised data transfer rules, and greater access to government procurement contracts, he argued.
The EU could benefit from closer economic ties with Beijing as Washington alienates both trading partners, he said, pointing to opportunities in green manufacturing and artificial intelligence technology transfers.
Chinese firms also need European partners to expand into developed markets given their limited international experience, Oehms added, but cautioned a closer commercial relationship with China faced stiff political resistance in the EU.