by Sarah Marsh

BERLIN (Reuters) – German direct investment in China rose 4 percent to a record 11.9 billion euros last year, according to official Bundesbank data analyzed by the IW institute.

This data shows that German companies continue to invest heavily in China, even as the government asks companies to reduce their exposure to the country.

German companies have invested as much money in China in the last three years as in the previous six, according to the IW Institute report, obtained exclusively by Reuters.

However, German investments in China over the past four years have been exclusively profit reinvestments, with companies also withdrawing capital from the country, which qualifies the situation.

“We can assume that there remains a divide between the few large companies and the majority of small and medium-sized companies,” writes Juergen Matthes, an economist at IW, in the report.

“Other studies and anecdotal evidence suggest that some small and medium-sized businesses are seeking to reduce their engagement with China, or even withdraw altogether.”

The proportion of German companies withdrawing from the Chinese market or planning to do so has more than doubled over the past four years to 9 percent, according to a survey by the German Chamber of Commerce in China published last month.

German direct investment abroad fell last year to 116 billion euros, from around 170 billion euros in 2022, as Europe’s largest economy teetered on the brink of recession, the report said of the IW.

Investment in China now accounts for 10.3% of Germany’s total overseas investment, its highest level since 2014, while the share of German direct investment elsewhere in Asia has stagnated at around 8%.

Germany wants to reduce its exposure to China, but the country remained its main trading partner for the eighth consecutive year in 2023, according to preliminary figures from the statistics office.

Chancellor Olaf Scholz’s coalition government is divided on the question of exposure to China and to what extent this should be reduced, with the Social Democrats (SPD) arguing for a gradual move away, while the rest of the parties coalition favor rapid disengagement.

Olaf Scholz will visit China with a delegation of business leaders on April 15-16, a person involved in organizing the trip told Reuters earlier this month.

(Reporting Sarah Marsh, Corentin Chappron, editing by Zhifan Liu and Kate Entringer)

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