China’s importance to German exporters is declining.

China's importance to German exporters is declining.

China’s Declining Role as a Market for German Exporters: A Shift in Economic Ties

BERLIN, Aug 4 (ANBLE) – China’s importance as a market for German exporters is steadily declining, with data showing a consistent decrease in its share of total exports. This trend is expected to continue as Berlin and Beijing reevaluate their economic ties.

Despite hopes of a trade boost after Beijing lifted pandemic restrictions, exports to China accounted for only 6.2% of total German exports in the first half of this year – the lowest share since 2016. This is a significant drop from the peak of 7.9% in 2020, with the share falling to 7.5% in 2021 and 6.8% in 2022.

China’s emergence as a market economy in the 2000s provided a massive boost to German companies and contributed significantly to the overall health of the German economy. However, this driver of growth for Europe’s largest economy is set to lose steam in the coming years.

“For some years now, euro zone exports to China have no longer been growing faster than overall exports, and recently they have even been somewhat weaker, which has weighed more heavily on Germany’s manufacturing sector than on that of its peers,” noted Commerzbank’s chief economist, Joerg Kraemer.

The slowdown in China’s growth is one reason for this decline. In the second quarter, China’s economy grew by just 0.8%, as its post-COVID recovery faltered following 2.2% growth in the first quarter.

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Carsten Brzeski, global head of macro at ING, believes it is premature to declare the end of the China boom, as the country’s economy may yet recover while the U.S. economy cools, potentially changing trade dynamics. However, Brzeski also highlights the long-term decline in China’s share of German exports, emphasizing the need for Germany to prepare for the fact that China will no longer save its export sector.

In the first half of this year, Germany exported goods worth 791.5 billion euros ($866.61 billion), representing a 3.2% increase compared to the same period last year. A breakdown of the export destinations reveals that Germany exported goods worth 78 billion euros to the United States during this period, marking a 4.8% increase, while exports to China amounted to 49.4 billion euros, indicating an 8.4% decline.

The fact that China is increasingly able to produce goods it previously imported from Germany is a significant factor impacting German exports, according to Brzeski. However, he also acknowledges Germany’s continued import dependence on China, particularly for raw materials and solar panels, essential for the country’s energy transition.

Vincent Stamer, a trade expert at the Kiel Institute for the World Economy (IfW) in Germany, highlights China’s climb up the technological ladder. With its growing technological progress, China is becoming increasingly self-sufficient in creating value-added products. This self-sufficiency means that China no longer needs to import goods from Germany and other countries.

Despite these developments, Stamer believes it is premature to completely dismiss China as a customer. He argues that China will remain an important sales market in the coming decade, albeit with less visibility in export figures and more emphasis on balance sheets. For example, many German carmakers are now producing locally for the Chinese market.

The weaker demand from China has had a profound impact on the German manufacturing sector, which has been in decline. A recent PMI survey showed that the downturn in the manufacturing sector deepened in July. This further underscores the need for Germany to diversify its export destinations and rely less on China.

In conclusion, China’s declining share of German exports reflects a changing economic landscape and evolving trade dynamics. While the China boom may not have ended, it is clear that Germany needs to adapt and diversify its export markets. It is a reminder that relying too heavily on any one market can expose exporters to significant risks when that market experiences a slowdown. By exploring new opportunities and strengthening ties with other economies, Germany can secure its export sector’s long-term growth and sustainability.

($1 = 0.9133 euros)

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