German Manufacturing Companies Want to Reduce Dependence on China

Almost half of Germany’s manufacturing companies are currently dependent on key inputs from China. Many of them want to reduce this dependence, finds an ifo Institute survey. “In German manufacturing, 46 percent of all companies say they source significant inputs from China. Of these companies, almost one in two is planning to reduce these imports from China in the future,” says Lisandra Flach, Director of the Ifo Center for International Economics. 

The companies are hoping to diversify their sources of supply more, reduce costs and risks in logistics, and be prepared for political uncertainty. “German companies’ aspirations could receive effective support from German and European trade policy,” Flach says. “It would be desirable for the German government to push hard at the EU level for swift ratification of the trade agreement with the Mercosur countries and for Germany to modernize its trade agreement with Mexico. EU negotiations on agreements with Australia and India should also be given high political priority.” This would help European companies quickly gain improved market access in these countries and thus increase the number of sources of supply. 

China plays an important but by no means dominant role as a supplier and sales market for Germany, Flach says. This becomes apparent when direct and indirect value chain interdependencies are taken into account, she writes in an article published in ifo Schnelldienst. “However, Germany is dependent on China for several specific industrial goods and raw materials,” she says. 

“If Germany abruptly decoupled from the Chinese economy, this would disrupt specific key supply chains. That’s why more efforts must be made at the European level to diversify when it comes to critical goods and raw materials,” says ifo researcher Andreas Baur, the article’s co-author. “EU countries should act with the greatest possible unity toward Beijing. This will be crucial for the future of trade relations with China,” he adds.