Germany’s most promising industries depend on China, clashing with Berlin’s derisking push, study finds

Germany’s most promising industries are also among the most tightly connected to Chinese supply chains, found a new study published on Thursday (8 October). The paper, Industry with a Future, by the Cologne-based ZOE Institute for Future-fit Economies, ranks 62 German industries according to their prospects for future value, links to green technologies, and contribution to the wider German economy. Small electrical industries come out particularly well, including clean tech sectors, such as battery producers and manufacturers of electric motors, switchboards, and computer equipment. These areas combine the kind of specialised know-how that is difficult to copy, which can protect high-wage economies, such as Germany, from cheap foreign competition into the future. But many of those industries still depend on China for components, and in some cases also rely on Chinese buyers to sell their products to. “China matters to these industries not only as a competitor, but also as a supplier and a buyer,” the ZOE Institute study’s co-author, Marla Schiefeling, told journalists at a briefing on Wednesday. That leaves Germany with a difficult industrial policy problem: It needs to scale these sectors up while cutting its dependence on China, but the fastest way to scale is with cheap Chinese components.To solve this predicament, the authors argue for diversifying suppliers and creating more demand in Germany and the EU. Old giants, new tricks? The driver of the troubles is that the German economic model itself isn’t working anymore. Around 420,000 manufacturing jobs were lost between 2019 and 2025, and German exports to China fell 29 percent from their 2021 peak to 2025, the study notes. “Production and employment in German industry have been falling for years. This is definitely not a cyclical dip. It is a structural problem,” said co-author Lukas Bertram. Reliant as it is on exports, Germany’s big export industries, such as car makers or industrial machines, are losing competitiveness, mostly to China, while facing US tariffs abroad and high energy prices at home. Yet the study argues these industries are also the country's best hope, and are better placed to create new value than their current troubles suggest.German carmakers, such as BMW, Mercedes, and Volkswagen, which are in the direct line of fire of China's EV dominance, already make much of what is needed to build batteries, wind turbines or power grids, from electronics to metal parts. "From these capabilities, new leading roles can emerge, for instance in electric mobility,” the report’s authors note.While still associated with fuel and combustion engines, carmaking ranks among the top three industries for eight of the 10 green supply chains the authors examined. Machinery, metal products and parts of the chemicals industry also do well, which the authors initially found surprising. “We briefly wondered whether something was off with the methodology. But once we dug deeper, we realised it makes complete sense,” said Schiefeling. “There’s still a lot of potential and a huge amount of technological know-how there,” she added. “The task is to translate that into sustainable production structures from which new value can emerge,” she said.Other sectors, such as coal power, coke ovens, oil refining, and fertiliser production, by contrast, have little future in Germany, the study finds.But rather than letting them collapse, the authors argue they should be wound down gradually, which they call "strategic de-scaling." 'Made in EU' Meanwhile in Brussels, the debate about the EU's Industrial Accelerator Act is heating up. The first version of the plan was circulated by the commission in March, but it is still being redrafted, with a new version presented on Wednesday. At the heart of the plan is the 'Made in EU' clause. This would require governments to favour European-made (low-carbon) goods, starting with steel, cement, aluminium, cars, and clean technologies. In a joint non-paper sent to the commission on Monday, German chancellor Friedrich Merz and French president Emmanuel Macron similarly called for a "European preference" in strategic sectors and to “derisk” from Chinese supply chains, notably in batteries and clean energy equipment. But the ZOE Institute's Bertram said that while ‘made in Europe’ criteria could help create demand for EU and Germany fledgeling industries, this might not help all sectors concerned. For a German battery or switchboard maker that can only source its parts from China, such rules might "initially raise prices rather than genuinely create local production capacity," he said.