Germany and China: A Delicate Balance of Economic Imperatives and Strategic Divergence

BERLIN – The intricate relationship between Germany and China has entered a new, challenging phase, characterized by a fundamental re-evaluation of long-held economic partnerships in the face of escalating geopolitical tensions and differing values. Once a relationship primarily defined by mutual economic benefit, Berlin is increasingly navigating a complex landscape where the imperatives of trade and investment clash with concerns over human rights, strategic dependencies, and systemic rivalry. This evolving dynamic presents both significant challenges that demand strategic recalibration and new opportunities for cooperation on critical global issues, particularly climate change.

The Shifting Sands of Economic Engagement

For decades, the economic relationship between Germany and China served as a cornerstone of growth for both nations. Germany supplied high-quality industrial goods and advanced technology, while China offered an expansive market and a manufacturing hub. However, this era of seamless complementarity is yielding to a more competitive reality. Recent data from the Federal Statistical Office (Destatis) indicates that China once again became Germany's most important trading partner in 2025, with a total trade volume reaching 251.8 billion euros, regaining the top spot from the United States. While this figure underscores continued robust trade, underlying trends reveal a deepening trade imbalance and intensifying competition that challenges Germany's industrial prowess. In November 2025, German exports to China decreased by 3.55% from the previous year, while imports from China saw a significant 12.3% increase.

Chinese companies have rapidly advanced their capabilities across various industries, leading to increased competition for German firms not only within China but also in global markets. Sectors traditionally dominated by German engineering, such as mechanical engineering and chemicals, are now experiencing competitive pressure from Chinese counterparts. The automotive industry, a vital component of Germany's export economy, faces a dual threat: shrinking margins in China and growing competition from Chinese electric vehicle manufacturers globally. This "China shock 2.0," as some analysts term it, highlights the impact of market distortions and surplus capacities from Chinese output on the European single market. The European Union (EU) overall recognizes China as a crucial market but also faces increasing risks and challenges, including growing imbalances and a lack of reciprocity in market access.

The Imperative of "De-risking"

In response to these economic shifts and growing geopolitical uncertainties, Germany has formally adopted a "de-risking" strategy, a cornerstone of its 2023 China strategy. This approach aims to reduce critical dependencies on China and diversify supply chains, rather than pursuing outright "decoupling". The strategy acknowledges the high exposure of key German industrial sectors, such as automotive, machinery, and chemicals, to the Chinese market. For major German manufacturers, China remains both a critical market and a base for their supply chains, making the implementation of de-risking a complex endeavor. For example, Volkswagen (VW) reportedly derives 40-50% of its revenue from China, the world's largest car market.

However, the path to de-risking is fraught with challenges. Germany's ambition to become greener is paradoxically deepening its reliance on Chinese green technologies. In the past year alone, Germany imported over 18 billion euros worth of batteries, electric cars, and solar systems directly from China. While seeking to reduce vulnerabilities, Germany finds itself navigating a delicate balance, where the benefits of affordable Chinese green tech are weighed against the risks of new dependencies. An effective de-risking strategy requires robust risk assessment and transparent information, areas where further development is needed. The EU also emphasizes the need for market diversification, reduction of vulnerabilities, and risk management in strategic sectors like critical raw materials.

Navigating Geopolitical Headwinds and Human Rights

Beyond economic concerns, Germany's relationship with China is increasingly shaped by profound differences in political systems and values. Human rights have become a prominent point of contention, with Germany consistently raising concerns about the treatment of Uyghurs and other ethnic minorities in Xinjiang, as well as the erosion of democratic freedoms in Hong Kong. Public opinion in Germany largely supports a firm stance on human rights in dealings with China. The German government's 2023 China strategy explicitly states that human rights are "at the heart of" its policies toward China.

Geopolitical considerations further complicate the landscape. China's growing military assertiveness in regions like Taiwan and the South China Sea, coupled with its continued alignment with Russia, particularly in the context of the Ukraine war, have added a security dimension to the relationship. Instances of alleged Chinese espionage against German companies also contribute to a growing sense of caution. This has spurred a broader shift in Germany's foreign policy, moving from a purely business-oriented approach to a more strategic-industrial perspective, aligning with the EU's classification of China as a "systemic rival".

Opportunities for Climate Collaboration

Despite the formidable challenges, climate change stands out as a critical area where Germany and China recognize a shared responsibility and actively pursue cooperation. Both nations acknowledge their pivotal roles in addressing climate change and achieving the 1.5-degree global warming target. In 2023, Germany and China signed a Memorandum of Understanding to establish a dialogue and cooperation mechanism on climate change and green transformation. This agreement outlines eight key areas for collaboration, including industrial decarbonization, the expansion of renewable energy sources, the circular economy, and sustainable financing.

Since 2020, a Sino-German Track 2 Dialogue has fostered expert exchange on climate finance, greenhouse gas mitigation strategies, and climate governance. Germany is particularly interested in China's rapid development in areas like hydrogen production and the deployment of renewable energies, seeing opportunities to learn from China's advancements. China, in turn, is keen on Germany's expertise in areas such as electricity grids and trading. With China committed to peaking carbon emissions before 2030 and achieving carbon neutrality by 2060, continued collaboration between these two industrial powerhouses is seen as indispensable for global climate action.

Conclusion: A Future Defined by Strategic Engagement

The relationship between Germany and China is undeniably at an inflection point. The simplistic "win-win" narrative of the past has given way to a nuanced understanding of a relationship marked by both intense competition and strategic necessity. While economic interdependence remains significant, Germany is actively pursuing a strategy of de-risking to mitigate vulnerabilities and assert its values. Simultaneously, the imperative to address global challenges, most notably climate change, provides a crucial avenue for sustained engagement and cooperation.

Navigating this complex terrain will require continued diplomatic acumen and a clear articulation of Germany's interests and values. The ability to balance economic pragmatism with a principled stance on human rights and international norms, while forging alliances within the EU and with other global partners, will be paramount. The future of Germany-China relations will likely be defined by a pragmatic, yet vigilant, strategic engagement, where opportunities for collaboration are pursued selectively and challenges are addressed with a unified and resilient approach.