Germany’s trade deficit with China narrowed for the first time since 2018, supporting an increase in the overall trade surplus of Europe’s largest economy.
The deficit with the Asian country will shrink to 58.4 billion EUR in 2023, down from 86 billion EUR reported a year earlier, according to data published by the German statistics office.
Despite the year-on-year decline, the deficit remains the second largest in the history of statistics and is mainly due to a 19% drop in Chinese imports.
The trade imbalance between China and Germany remains a problem for the European economy. Last Friday, the government in Berlin created a 1 billion EUR state fund to invest in mining projects outside of China. The move aims to reduce Germany’s dependence on important raw materials needed for technologies such as electric vehicle batteries, semiconductors and green energy production.
“We are still reporting a scale that makes us sick to our stomachs because it is very unusual to have such a huge trade deficit with a single country”, commented Jurgen Matthes, who heads global and regional markets at IW. He estimates that about 10% of the decline in imports is due to base effects related to unusually large orders for chemical products in 2022.
China’s catch-up in the engineering and automotive sectors only adds to the worries. Chinese electric vehicle maker BYD, which overtook Tesla in sales in the fourth quarter, said it will seek to expand in Europe with the idea of dislodging German and other local brands from the leadership position.
Trade between Germany and China in recent years. Chart: Bloomberg Trade between Germany and China in recent years. Graphics: Bloomberg
German companies are also changing their strategy.
“We are hearing from many companies that they increasingly want to manufacture in China for China, also as a result of geopolitical risks”, pointed out Jurgen Matthes before the data was released. “In this way, the demand of Chinese customers will increasingly be met by production of German companies in China instead of exports from Germany. This is at the expense of the German economy, while China will ultimately benefit from such a change in business strategies”, added he.
Total numbers on Monday showed that Germany’s trade surplus for 2023 rose to 209.4 billion EUR as a drop in imports (10%) managed to offset a 2% drop in exports.
