OR China is the greatest threat to German economy – From the car industry to the engineering and green technologies. Germany can cope with the challenge? The industry, the pillar of the German economy, is facing an unprecedented challenge: in the last five years there has been a significant decrease in industrial production, threatening to threaten up to 5.5 million jobs and 20% of the country’s GDP, the Centre for European Reform reports.

The causes are many: Energy costs launch after the start of the Russian invasion of Ukraine and the supply chains have clearly played a decisive role. However, China’s rotation change-which, with Made in China 2025 strategy, passed through low-value production, in high-tech products and the innovative industry, aiming to lead the world in the technology industry and beyond.

China’s rotation change

Contrary to the early 2000s, when the Chinese industry had developed significantly, but this has not affected the German industry, today Beijing is focusing on the automotive industry, green technologies and other areas, which are the backbone of the German industry.

‘China has covered lost ground in many developed industries […] and are very strong in them, […] As a result, Germany’s poor performance and development is further exacerbated, “observes DW Holger Gerg, head of the International Trade and Investment Research Group of the Institute of Kielos for the global economy.

The speed at which China has reached Germany is obviously in the automotive industry – with German manufacturers criticized for lack of innovative ideas and a slow transition to electric drive.

Under pressure the German chemical industry

At the same time, China is making great progress in other areas, such as in the chemical industry, with Chinese factories often overcoming demand and therefore further reducing the profit margins of German companies, such as BASF.

Even in the EU, a key market for Germany, China’s export share in the 2013-2023 chemical exports increased by 60%, while Germany decreased by more than 14%, according to Handelsblatt Research Institute. Similar problems due to Chinese competition is also faced by the German engineering industry.

Important subsidies from the Chinese state

The Chinese state is also making significant subsidies to various central industry companies, allowing them to produce lower costs and more scale compared to western state companies.

According to the conservative estimate, China’s subsidies to the domestic industry amounted to about $ 242 billion in 2019. As a report by the International Monetary Fund found in 2022, these subsidies are primarily directed to the chemical industry, engineering, mining industry and the automotive industry.

German engineering companies will be increasingly difficult to compete with Chinese, which are able to offer their products at significantly lower prices. Sometimes these are even 50% or more compared to German prices. According to a survey by the German Chamber of Commerce in China (AHK) more than half of the German companies operating in China expect that in the next five years, they will be followed by their Chinese competitors in innovation.

A perennial process

All this did not happen “overnight”, however, Brad Setser, one of the Editors of the CER report, points out on DW. The question is “why Germany’s previous governments did not foresee what would happen and did not take more adaptation measures”. Now Germany is facing a historic turning point – and according to economists, it will have to immediately adapt its trade, industry and fiscal policy to the new economic reality.

“From an economic point of view it is not so much for the country to try to re -establish its sovereignty in these areas,” Gerg said. “The important thing is to focus on branches that remain strong – such as on the pharmaceutical industry, biotechnology and know -how.”

The CER report calls on the next German government to put pressure on China, utilizing EU defense policies, for example through the imposition of tariffs on Chinese exports that absorb significant government subsidies, such as electric vehicles and wind turbines.

“Germany must find alternative purchases for cars and exports of its industry. And the biggest market for Germany is by far the European one, “Setcher stresses.

Germany must ‘change mentality’

According to Serden Ozcan, head of innovation and business transformation in Wu – Otto Beisheim School of Management of Düsseldorf, both politicians and business managers will have to “change their mentality” in order to be able to cope with the speeds at which they are evolving today.

Ozcan criticizes that Germany has a “fear of aggressive competitiveness”, but also an obsession with a “failed overprotection”, with Berlin often providing excessive support to companies that are no longer competitive. “In China the opposite is the case,” Ozan explains to DW. Beijing “allows dozens of companies to enter a growing industry, although many of them fail. And those businesses that in the end survive, end up being very strong. “

Now many hope that loosening the debt and the plan to invest nearly 1 trillion euros over the next 12 years to improve the country’s defense and infrastructure may improve the situation in Germany. At the same time, however, there are those who are afraid of focusing too much on defense and infrastructure, Germany may miss the opportunities that arise in developing industries.

The new generation CEOS

Finally, according to Ozcan, the new generation CEOS will probably better understand the problems facing the German industry, but also to adapt more easily to the challenges.

The expert cites the case of Christian Klein, 44 -year -old CEO of SAP – Klein has managed to grow the market value of the company by about 70%, simply because he focused early on artificial intelligence.

After all, in modern times, as Ozcan explains, “an automotive company no longer competes with other companies in its industry.” On the contrary, it also competes with companies that are developing innovative cutting -edge technologies – as respectively in the future, “there will be not the colossal of the pharmaceutical industry that will develop cancer treatments, but also the companies operating in the artificial intelligence industry”.

Curated by: George Passas