German FDI in China hits 4.3% increase in ’23

German direct investment in China reached a record high of €11.9 billion ($12.7 billion) in 2023, a 4.3 per cent increase, Reuters reported on Wednesday, citing official Bundesbank data analysed by the IW institute.

Despite the German government urged the firms to decrease their exposure and its significant reduction of investment guarantees in China, the data highlights the persistent trend of German companies maintaining substantial investments in the country.

Exclusive access to the IW institute report obtained by Reuters reveals that German firms have invested in China over the past three years an amount equalling that of the previous six years.

However, the report also shows that German investments in China over the last four years were financed entirely by reinvested profits, and some companies have withdrawn capital.

This suggests that there is a divide between large companies and small and medium-sized enterprises, said an economist at IW. He added that small and medium-sized enterprises are seeking to reduce their engagement with China or exit the market entirely.

A survey by the German Chamber of Commerce in China found that the proportion of German firms considering exiting the Chinese market has more than doubled to nine per cent in the last four years.

Overall German foreign direct investment declined to €116 billion last year from around 170 billion euros in 2022, as the country faced economic challenges, the report mentioned.