More and more German companies have significantly reduced their dependence on Chinese upstream products since 2022, but this process now appears to have stalled. While 46% of companies were still dependent on important upstream products from China in February 2022, immediately before the start of the Russian attack on Ukraine, this figure has now fallen to 37%, according to the Munich-based Ifo Institute's survey.

However, this does not apply to companies that source important inputs from their own production facilities in China. In this respect, the Ifo Institute emphasizes that the importance of foreign investments by German companies for trade relations with China has also increased - and thus also their importance for the political leadership in Beijing. In the opinion of the Ifo Institute, the role of foreign investment should therefore also be given greater consideration in the government's promotion of trade diversification. The realignment of state investment guarantees last year with the aim of avoiding an excessive concentration of investment guarantees is therefore also to be welcomed in terms of better supply chain diversification.

The survey also revealed that fewer and fewer companies want to further reduce their imports from China in the future not only because the direct dependencies are too great, but also because the price competitiveness may be convincing. Two years ago, almost every second industrial company was still planning to do so. In the current panel, this proportion had fallen to 38%.

The German government is encouraging the domestic economy not to bet everything on China, but to spread investments more widely. This strategy is also known as derisking. The background to this is the risk of a war in Taiwan, which could result in sanctions against China - similar to those against Russia following the invasion of Ukraine - and disrupt supply chains.

This also appears to be the main motive for companies to reduce their dependence on China. According to Ifo, transport disruptions and freight costs are cited much less frequently by the companies surveyed as a reason for reducing imports compared to 2022, but still play a non-negligible role overall. This is because during the coronavirus pandemic, many companies had painful experiences with broken supply chains and insufficient supplies of raw materials and preliminary products.

Manufacturers of data processing equipment (65%), electrical equipment (60%) and companies in the automotive industry (59%) stated particularly frequently that they were still dependent on important primary products from the People's Republic. „Compared to the 2022 survey, however, the proportion of companies sourcing important intermediate products from China has decreased in almost all industrial sectors,“ said study co-author Andreas Baur.

The diversification of supply chains has increased the importance of non-European sources of supply from regions of the world other than China. However, domestic and European alternatives are apparently being considered less frequently. The decline was particularly strong among furniture manufacturers (minus 29 percentage points) and in the automotive industry (minus 17 percentage points). The only exception was the chemical industry: in the latest survey, 46% of all companies stated that they were dependent on upstream services from China. Compared to 2022, this was an increase of 5 percentage points.

China is still Germany's most important trading partner. In 2023, however, imports from China decreased by 19.2% and exports fell by 8.8%. With a foreign trade volume of 253.1 billion euros, the „Middle Kingdom“ was only just ahead of the USA (252.3 billion euros). China's share of total German goods exports has fallen from just under 8% to just over 6% since 2020.