German Investment in China Rose by a Third in H1 2026 as US Spending Fell, IW Study Finds

German corporate investment in China surged by a third during the first half of 2026, even as capital outlays in the United States fell sharply. This divergence highlights a complex strategic calculation by German businesses amid global trade tensions and a broader push in Europe to reduce economic dependencies, according to a study by the German Economic Institute (IW).

A Tale of Two Economies

The analysis, which is based on data from Germany's central bank, the Bundesbank, shows a significant shift in investment flows. Key findings from the first six months of 2026 include:

• China Investment: German companies invested €5.6 billion ($6.5 billion) more in China compared to the same period in 2025. The IW noted this level was broadly consistent with the six-month average recorded between 2020 and 2025.
• U.S. Investment: In stark contrast, German corporate investment in the U.S. declined by nearly two-thirds to approximately €4.3 billion.

This shift resulted in China surpassing the United States as a primary destination for German investment during the period, a notable development given ongoing geopolitical and economic crosscurrents.

Rationale Behind the China Push

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According to Juergen Matthes of the IW, German companies have limited practical scope to withdraw from the Chinese market. The institute's report described China as both a critical sales market and a vital location for companies to sharpen their competitive edge.

Matthes cited factors such as Chinese state subsidies and an undervalued yuan, which he argued make production in the country "artificially cheap." This environment encourages German firms to expand local operations to effectively compete with Chinese rivals in global markets.

Economic Consequences and Policy Calls

The trend comes at a potential cost to Germany's domestic economy, with the IW study suggesting that increased investment in China leads to a shift in production and employment away from Germany. In light of these findings, Matthes called for the European Union to consider imposing countervailing tariffs on Chinese imports.

The drop in U.S. investment was linked in the report to ongoing trade tensions and tariffs. The data underscores the challenge facing European policymakers who advocate for de-risking from China while German industry continues to deepen its economic ties.