China increasingly controls Germany's auto and engineering industries

Germany’s industrial sector is facing an unprecedented challenge. Germany – once a leader in high-end manufacturing – has seen its industrial output decline for the past five years, according to a new report from the London-based Centre for European Innovation (CER). This threatens 5.5 million jobs and accounts for 20% of the country’s gross domestic product (GDP).

The Russia-Ukraine conflict has forced Germany to reduce its dependence on Russian oil and gas, leading to high energy prices and severely affecting industries such as chemicals and steel. In addition, disruptions to supply chains following the pandemic have reduced demand for German exports.

Another major driver is China's rapid shift from low-value manufacturing to high-tech and innovative industries. The "Made in China 2025" strategy aims to make China a global leader in advanced manufacturing and technology.

China leads the way in electric vehicle innovation. Photo: GI

Initially, China’s rapid growth in the early 2000s was largely focused on low-tech electronics, home appliances and textiles, so it did not have a significant impact on Germany. However, Beijing’s industrial policy has since shifted towards key German sectors such as automotive, clean technology and mechanical engineering.

“China has caught up in some advanced industries… they are very strong in these areas… and that is contributing to Germany’s poor growth,” said Holger Görg, head of the International Trade and Investment research group at the German Institute for the World Economy.

Competition in the auto industry has been particularly acute in the face of pressure from China. German carmakers have been criticized for a lack of innovation, a slow transition to electric vehicles (EVs) and failure to anticipate competition from Chinese brands such as SAIC Motor and BYD, raising concerns about tens of thousands of job losses and factory closures.

Chinese chemical companies have dramatically increased production, especially of polyethylene and polypropylene, creating a global oversupply and squeezing profit margins for German groups. In the European Union, China’s share of chemical exports increased by 60% between 2013 and 2023, while Germany’s share fell by more than 14%.

Germany’s mechanical engineering industry, renowned for its precision and quality, is also struggling in the face of fierce competition from China. Between 2013 and 2023, Germany’s share of industrial machinery exports fell slightly to 15.2%, while China’s share rose from 14.3% to 22.1%.

Ha Trang (according to CER, DW)