German companies under pressure to adapt as China challenges them at their own game

MOOSBURG, Germany (AP) — The backbone of the German economy is manufacturing and exporting high-quality, complex goods, ranging from cars and locomotives to factory machinery, aircraft, and construction equipment. This traditional model is now facing a formidable challenge from China.

China, as a new competitor, has managed to match or even surpass Germany's exports in quality while keeping prices significantly lower. This "China shock" is one of the key reasons why Germany's economy has stagnated since the COVID-19 pandemic. The sluggish economy has contributed to Chancellor Friedrich Merz's governing coalition being unpopular ahead of an upcoming election in Saxony-Anhalt.

German companies once enjoyed substantial profits from selling to China, but the tables have turned. Chinese companies, supported by Beijing in targeted sectors, have found buyers for their goods in Europe, where they cannot find enough in the currently tepid Chinese economy. Consequently, these Chinese goods are being shipped to foreign markets, including Germany.

The German economy, Europe's largest, has experienced stagnation for several years, shrinking in 2023 and 2024, with only a 0.2% growth rate last year. Although the unemployment rate remains lower than the EU average, Germans are noticing the unsettling job losses at companies that have historically defined the German economy. Major job reductions include 50,000 at Volkswagen, with more expected, 8,000 buyouts at BMW by the end of next year, and a reduction of 13,000 at auto technology firm Bosch by 2030.

Inflation has been outpacing wage increases after the pandemic, with real wages only just catching up to 2019 levels. German companies must now lower costs in an environment where the Chinese total market has shrunk by 20%, and Chinese competitors are increasing exports, intensifying competitive pressure in Europe.

Volkswagen's finance chief, Arno Antlitz, notes that Germany has been hit the hardest by this economic shift. China's economy is now consuming much of German industry's lunch, and it is preparing to move on to dinner. Economists Brad Setser and Sander Tordoir have echoed this sentiment.

To adapt, some German companies are forming partnerships with Chinese manufacturers. Jungheinrich AG, a German maker of forklifts and warehouse vehicles, has joined forces with Chinese manufacturer EP Equipment to produce AntOn, an entry-level forklift that can compete with competitors on price. By leveraging EP's large scale and lower production costs in China, along with Jungheinrich's global sales force and reputation, the duo aims to offer a robust, cost-effective solution to customers who may not require German-made high-end machinery for their needs.