“With China covering, for instance, more than 95% of the rare earth market, you cannot replace this in a short time,” he\u00a0told DW. “These are long-standing and reliable trading relationships, and the material and processes are proven.”<\/p>\n
For R\u00fcth and so many other firms in Germany, China remains an obvious place to do business. For a long time, the German government fully embraced and encouraged that position.<\/p>\n
However, the country’s authoritarian shift under President\u00a0Xi Jinping \u2014 which has seen China back Russia in the aftermath of the invasion of Ukraine \u2014 has changed EU-China relations.<\/p>\n
The geopolitical position has shifted<\/a> and for the last few years, the German government has spoken of “de-risking” [reducing dependencies on a single country for components, goods or raw materials\u00a0\u2014 the ed.]\u00a0from China, not least because of the risks of foreign companies facing harsh measures from the Chinese authorities.<\/p>\n Recently, German Chancellor Friedrich Merz said of German companies working in China: “I always tell them when I meet them: ‘That’s your risk if things go wrong, please don’t come to us.'”<\/p>\n Earlier this week, German Finance Minister Lars Klingbeil visited China<\/a>to discuss the two countries’ evolving economic relationship.<\/p>\n Speaking in Beijing, he said Germany sees “fair competition at risk and also sees industrial jobs under threat,” but he emphasized the need for dialogue, saying: “We have to speak with China instead of speaking about China.”<\/p>\n A love story in cars<\/p>\n China is clearly a relationship that German industry<\/a> finds hard to quit,\u00a0and with good reason. Earlier this week, China overtook the US to once again become Germany’s top trading partner.<\/a> Trade between the two countries was \u20ac185.9 billion ($215 billion) between January and September this year.<\/p>\n For decades now, leading German industrial titans have prioritized the massive Chinese market<\/a> and investment volumes remain high.<\/p>\n According to a recent study from the Mercator Institute for China Studies in Berlin<\/a>, German foreign direct investment<\/a> accounted for 57%\u00a0of total EU investments in China in the first half of 2024, roughly 2.3%\u00a0of German GDP. It notes that investment volumes are still growing, with corporate investment increasing by \u20ac1.3 billion\u00a0between 2023 and 2024.<\/p>\n One of the sectors that has seen Germany and China most entwined is car making. Some of the largest German carmakers<\/a>, such as Volkswagen and BMW, have invested and made billions in China over the years, and despite severe recent struggles, still retain hopes of long-term success.<\/p>\n BMW recently invested \u20ac3.8 billion into a battery project in the city of Shenyang and the company told DW it has no major plans to pivot away from the country.<\/p>\n “The BMW Group is represented in the Chinese market by two joint ventures and operates several plants there,”\u00a0Britta Ullrich, a spokesperson for the carmaker, told DW. “In our largest single market worldwide, we pursue a long-term market strategy, which we regularly review and adjust as needed. There are no fundamental changes to our activities in the region.”<\/p>\n However, despite the continued importance of China for German carmakers, the relationship is undergoing a fundamental shift<\/a> \u2014 not just because of geopolitics. The intense competition German carmakers now face from Chinese rivals and the perception that some of that competition has been achieved through Chinese industrial practices\u00a0undermine global trade<\/a> rules.<\/p>\n “It is crucial that there are equal competitive conditions and a level playing field on both sides,” a spokesperson for the German Association of the Automotive Industry (VDA) told DW. “In this context, China is called upon to approach Europe with constructive proposals, to consistently and swiftly prevent anti-competitive behavior, and to ensure free trade in the current situation.”<\/p>\n China: Germany’s rival and partner<\/p>\n To view this video please enable JavaScript, and consider upgrading to a web browser that supports HTML5 video<\/a><\/p>\n Yet despite the continued importance of China to German business<\/a>, financial\u00a0pressure is coming from all sides. German exports to China have fallen by 25% since 2019, while the main German carmakers Volkswagen, Mercedes and BMW have seen their market share decline sharply in the last few years, as China has ramped up its own electric vehicle production.<\/p>\n The VDA spokesperson added that while “the necessary de-risking is being pursued and implemented vigorously by companies in the automotive industry,”\u00a0it\u00a0must also be “enabled politically, not merely demanded.”\u00a0They also emphasized that de-risking should not mean the “closing off of markets.”<\/p>\n “The best policy is to do everything possible to promote business location, competitiveness, and growth,” they said. “This not only creates a stronger negotiating position but also fosters investment and innovation at home.”<\/p>\n The cold reality of market pressure<\/p>\n Rare earths trader Matthias R\u00fcth says it is important to remember that his business contacts in China are also impacted by the geopolitical tensions.<\/p>\n “The current difficulties stem mainly from political decisions, not from the suppliers themselves,” he said.<\/p>\n His business has been primarily impacted by China severely restricting rare earths exports<\/a>, which has also frustrated his suppliers. “They are also facing disadvantages and challenges of the current export restrictions,” he said.<\/p>\n How China outsmarted Europe and the US on rare earths<\/p>\nRare earth restrictions have hit companies like TradiumImage: Frank Rumpenhorst\/dpa\/picture alliance<\/p>\n