Foreign spending collapses: companies rely on China – investments near record levels

Foreign spending collapses
Companies rely on China – investments near record levels

German companies drastically reduced their investments abroad in the first half of the year. However, companies continue to be drawn to China. Direct spending there was once again at a high level. This means that China’s importance for companies has continued to increase – despite the debate about de-risking.

Despite the political debate about de-risking, according to a study, German direct investments are increasingly going to China. Companies invested 10.3 billion euros there in the first half of the year, according to an analysis by the German Economic Institute (IW). Although this was a slight decrease from the record level of twelve billion euros in the first six months of 2022, it was the second highest value ever. In all of the first half-years between 2010 and 2020, a maximum of half as much was invested in China, usually significantly less.

“The urge for China remains at a high level.” China’s share of all German direct investment flows abroad even climbed to 16.4 percent. “The country has never been so important in relation to the rest of the world,” said IW expert Jürgen Matthes. China’s share of total foreign investment was only 11.6 percent in the first half of 2022 and 5.1 percent before the corona crisis in 2019. The total German direct investment flows abroad, on the other hand, fell significantly lower to 63 billion euros in the first half of 2023 than in the same period of the previous year at 104 billion euros.

Every fourth euro goes to Asia

“Overall, the trend towards China is largely unbroken this year,” said Matthes. “Although the German economy as a whole invests much less additionally abroad, new direct investments in China remain almost as high as before.” The majority of the money comes from profits made in China and then reinvested.

The share of the rest of Asia was just under nine percent in the half-year that ended. The IW researcher described this as comparatively high – “but not exceptionally high either”. China’s share, on the other hand, has increased significantly and is much higher. “So there has been no diversification away from China, on the contrary: China’s importance relative to the rest of Asia has increased even further.” Overall, it is remarkable that almost a quarter of German direct investments have recently flowed to Asia.

The federal government is insisting on de-risking business with China, Germany’s most important trading partner. This is intended to avoid dependencies in key industries. Chancellor Olaf Scholz has repeatedly called on companies to diversify their supply chains and to work more closely with other Asian countries on exports and imports.

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