China shock 2.0: Beijing targets German industry as Berlin looks on

By Laura Fleischmann

Published on 28/05/2026 - 10:27 GMT+2

Germany’s economy has been struggling with weak growth for years. In the economic policy debate, this is attributed above all to high costs, a lack of innovation and structural problems that have built up over many years.

Many economists see the main need for reform at home. Ifo president Clemens Fuest, for example, is calling on the federal government, as he told Capital , to implement far-reaching changes to stimulate investment, foster innovation and generate new momentum for growth. What is needed, Fuest says, is "a comprehensive strategy for how Germany can achieve stronger long-term growth".

A new study at least partly challenges this widespread view. Under the title "China shock 2.0 – the cost of Germany’s complacency", economists Sander Tordoir and Brad Setser of the British think tank the "Centre for European Reform" argue that Germany’s economic weakness is primarily due to pressure from Chinese industry. In key markets, they say, Chinese companies are becoming increasingly dominant and are able to push European competitors aside.

China has established a particularly strong position in recent years in areas such as raw materials, rare earths and basic chemical inputs for the pharmaceutical industry. The same applies to future-oriented sectors such as semiconductors, robotics, batteries and electric vehicles. In the authors’ view, China now dominates many of these markets both technologically and economically.

This development is particularly evident in the automotive industry. Since the end of the coronavirus pandemic, Chinese manufacturers have significantly strengthened their position on the global market. For Tordoir and Setser, this is a sign of how quickly industrial power balances can shift, with potentially serious consequences for traditional manufacturing hubs.

China’s exports are rising

The authors expect European companies to continue losing market share in the coming years – not only on international markets, but also in Europe itself. As an example, they point to Germany’s solar industry, which was once seen as a global showcase sector and has now almost disappeared. The decline of industrial centres in the United States in the 2000s also serves them as a warning of what could happen in Germany’s industrial regions.

While many economists mainly criticise high labour costs, bureaucracy and a lack of competitiveness, Tordoir and Setser see the main cause of the problems in China’s targeted economic and industrial policy. Through market barriers, extensive state support, strategic control of raw materials and direct economic policy interventions, China has conferred substantial advantages on its companies.

According to the study, the consequences are already clearly visible. China’s exports have recently grown much more strongly than global trade as a whole, while Germany has been recording declines in its business with China since 2023. According to the authors, this is having a significant impact on industrial value creation and employment.

On the basis of their analysis, Tordoir and Setser derive concrete policy recommendations. They advocate stronger protective measures against Chinese competition. These include higher import tariffs in sensitive industrial sectors, greater priority for European products and stricter requirements for Chinese companies wishing to manufacture in Europe. They also consider joint-venture rules modelled on China to be conceivable.

Germany holding back on tougher China stance

Germany has so far reacted cautiously to such proposals. The reasons include its close economic ties with China and concern about possible retaliation. At the same time, Europe remains dependent on Chinese supplies in key areas, such as critical raw materials and industrial intermediate goods.

In a bid to strengthen economic relations between Germany and Beijing, Economy Minister Katherina Reiche (CDU) is travelling to China herself this week. She will be accompanied by a delegation of around 40 business representatives who want to explore potential cooperation projects.

At the same time, frustration is growing within the European Union: France, Spain, Italy, the Netherlands and Lithuania are calling in an informal position paper for a tougher response to China’s trade practices. Germany did not join this initiative. In March, Chancellor Friedrich Merz (CDU) called for the conclusion of a trade agreement with Beijing. Brussels rejected the idea.