Munich, Germany – – German Chancellor Friedrich Merz is navigating a complex geopolitical landscape as China’s economic influence continues to rise, presenting both challenges and opportunities for German industry. Recent meetings between Chancellor Merz and Chinese Foreign Minister Wang Yi underscore a continued, albeit evolving, dialogue between the two nations, even as concerns mount over trade imbalances and competitive pressures.
The meetings, held in Munich on , saw Wang Yi convey greetings from Chinese leaders to Merz, and highlighted China’s support for Germany’s pursuit of “strategic autonomy” and self-reliance. According to a statement released by the Chinese Ministry of Foreign Affairs, Wang Yi emphasized that China’s international initiatives are aimed at upholding the United Nations-centered international system and promoting a more equitable global governance structure. He also expressed China’s expectation that Germany would act as a “booster for China-EU practical cooperation” and a stabilizing force in China-EU strategic relations.
This diplomatic exchange occurs against a backdrop of increasing economic tension. Germany, traditionally a major exporter to China, is experiencing a significant shift in its trade relationship. Goods exports to China fell by 9.3% to €81.8 billion ($97 billion) last year, reaching their lowest level in a decade, while Chinese imports surged. This reversal is part of what analysts are calling a “second China shock,” a period of intensified competition from Chinese industries, particularly in high-tech sectors.
The automotive industry provides a stark example of this shift. While German automakers – Volkswagen, BMW, and Mercedes-Benz – once dominated the Chinese market, they are now facing increasing pressure from domestic Chinese manufacturers, most notably BYD. German vehicle exports to China have plummeted by approximately two-thirds since , according to data from Eurostat. BYD, in particular, saw its electric vehicle sales in Germany increase by over 700% last year, becoming a “disruptive force” in the European market.
This competitive pressure is prompting a reassessment of Germany’s economic strategy. Chancellor Merz has indicated a willingness to explore “strategic partnerships” with China, even amidst growing concerns about potential tariffs imposed by the United States. This suggests a desire to maintain access to the Chinese market while also seeking to mitigate the risks associated with over-reliance on a single trading partner. The situation is further complicated by the evolving global trade landscape and the potential for increased protectionism.
The shift in economic dynamics is not limited to the automotive sector. The “second China shock,” as described by Andrew Small, director of the Asia program at the European Council on Foreign Relations, is impacting a broader range of German industries. The relationship, once characterized by complementarity, is now increasingly defined by competition. This transition is happening at a faster pace than the initial wave of economic integration with China at the turn of the century, leaving German industries with less time to adapt.
Wang Huiyao, founder and director of the Center for China and Globalization, argues that framing the relationship as “China versus the West” is increasingly inaccurate. He suggests a more nuanced understanding is needed, recognizing the interconnectedness of the global economy and the potential for mutually beneficial cooperation. This perspective aligns with China’s stated commitment to high-standard opening up, which it claims will create opportunities for foreign investment and business.
However, concerns remain regarding the fairness of the business environment in China for foreign companies. Wang Yi, during his meeting with Merz, expressed hope that Germany would provide a “fairer and more equitable business environment” for Chinese enterprises, hinting at reciprocal expectations. This underscores the ongoing negotiations and delicate balance required to navigate the complex economic relationship between the two countries.
The recent meetings and statements signal a continued effort to maintain dialogue and explore avenues for cooperation, despite the growing economic challenges. Chancellor Merz’s approach appears to be one of pragmatic engagement, seeking to balance the need to protect German industries with the importance of maintaining access to the Chinese market. The outcome of this balancing act will likely have significant implications for the future of Germany’s economic relationship with China and its role in the global economy.
The situation also highlights the broader implications for Europe as a whole. Germany’s experience with the “second China shock” serves as a cautionary tale for other European nations grappling with similar competitive pressures. The need for strategic autonomy and a more diversified economic approach is becoming increasingly apparent as China’s economic influence continues to expand.
