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Don’t stop believin’: EU investments in China are being driven by Germany and its carmakers "to a greater extent than ever before," data shows (rhg.com)

submitted 3 weeks ago by [email protected] to c/[email protected]

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In 2022, when China was still paralyzed by zero-COVID lockdowns, we published a note entitled “The Chosen Few,” which highlighted the growing concentration of European foreign direct investment (FDI) in China among a small number of firms, countries, and sectors. Two years on, we take a new look at EU investment in China, assessing what has changed since Beijing abandoned its strict pandemic-era curbs and opened to the world again.

Completed EU greenfield investment in China rebounded over the past year to reach a record high of €3.6 billion in the second quarter of 2024. This surge came despite growing geopolitical and economic headwinds that led US and Japanese firms to pare back their investments in China. European M&A in China, by contrast, has slowed sharply over the past two years.
To a greater extent than ever before, EU investments in China are being driven by Germany and its carmakers. German FDI made up 57% of total EU investments in China in the first half of 2024, 62% in 2023, and a record 71% in 2022. This was driven by auto-related FDI, which has accounted for roughly half of all EU investment in China since 2022.
These investments are deepening the dependency of some of Germany’s largest companies on the Chinese market at a time when economic de-risking from China is a stated policy goal in Berlin and Brussels. As we saw in October, when the German government voted against EU duties on electric vehicle imports from China, these deepening ties can have a major influence on Germany’s policy toward China. This is likely to become a growing source of tension within the EU and between Europe and the United States.
Several multi-billion-euro investments were announced in the first half of 2024, meaning that completed EU FDI levels are likely to remain high through the end of the year and into 2025. But these levels will probably come down in the years ahead. Much of the EU’s recent investment in China has been driven by a push to localize production, in part to insulate China operations from geopolitical tensions and trade barriers. Once this defensive capacity is built up, and in the absence of a more positive economic outlook, EU investment in China is likely to slow.

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[–] TheSealStartedIt 9 points 3 weeks ago

This surely will end well...