Reluctant US vs Ambitious German Direct Investment in China – the Tale of Two Strategies

The author shows that the US as the world’s largest investor abroad so far shuns the most dynamic host region East Asia including China and instead continues to focus on investment in Europe. In contrast, Germany follows a different path. Similar to trade, German companies have been very active as investors, especially in China. The author explains the discrepancies in the regional structure of FDI by (1) differences in the sectoral focus: US in services and Germany in manufacturing, (2) differences in the regulatory framework protecting national security in the two home countries: much stronger in the US than in Germany especially against China, and (3) differences in Chinese policy interventions: stronger in services than in manufacturing. It can be expected that rising tensions between China and the US will lead to stronger trends of technological self-reliance on both sides, a higher local content of production and more importance of protecting national security. Against this backdrop, US companies with their low presence in China might face less challenges than German companies which are more subject to path dependency given their high presence in China.