German Exports Challenged: China Replaces ‘Made in Germany’

Germany exports significantly fewer goods to China than the countries' economic growth would suggest. The study suggests that expected trade values would have been 28 percent higher than actually observed flows of goods. This corresponds to a potential export gap of up to 30 billion euros. The surge in primary income from China and reinvested profits of German companies suggest that German firms are increasingly producing in China rather than exporting there. China is also increasing its share of domestic value added in goods, which has reduced China's import quota by half over the period under observation. Germany has long been able to maintain its share of Chinese imports, unlike South Korea and Japan. Other countries such as Vietnam, on the other hand, are increasingly supplying intermediate goods to China and benefited from new import trends in the People's Republic away from capital goods toward intermediate inputs. Germany's comparative advantage in the production of machinery no longer matches China's needs, so future growth markets for German export firms are more likely to lie in Southeast Asia and India.