German firms put €5.6 billion into China as US outlays drop 65%

German companies raised direct investment in China by about a third in the first half of 2026 while cutting investment in the United States by 65 percent, the German Economic Institute (IW) said in analyses based on Bundesbank figures.

IW put the China flow at about €5.6 billion ($6.5 billion) in the six months, in line with the average half-year level between 2020 and 2025 and about one-third higher than the same period of 2025. A companion calculation put US-bound investment at about €4.3 billion, down 65 percent from a year earlier and nearly 80 percent from the first half of 2024, the last such period before Donald Trump returned to the White House.

China, on those numbers, was the larger destination for German outbound corporate investment in the first half. That is the opposite of the political line in Berlin and Brussels, which has spent two years talking about reducing dependence on the Chinese market.

The "fitness centre" argument

Juergen Matthes of IW said German firms have "little choice but to continue investing in China." He called the country an important sales market and a "fitness centre" or "gym" where firms that can hold their position also become harder to beat elsewhere. State subsidies and a cheap yuan, he said, make local production artificially inexpensive and push German companies to expand inside China in order to compete with Chinese rivals on export markets.

The cost of that choice, Matthes said, is at home. "For Germany, this means production and jobs are shifting to China." He argued that the European Union should answer with countervailing tariffs on Chinese imports.

A German Chamber of Commerce in China survey cited in the same reporting found that more than 85 percent of German firms already in China plan to maintain or expand their presence. More than half, and in one version of the survey 61 percent, plan to raise investment over the next two years. Reinvested profits in China were €7.8 billion in 2025, against new investment of about €7 billion that year, according to earlier IW work.

Why the United States shrank

IW tied the US drop to tariffs and the uncertainty that has followed them. A first-half figure of €4.3 billion sits far below the pre-pandemic five-year first-half average of €15.8 billion that one secondary summary attached to the same research. Even without that longer baseline, a 65 percent year-on-year fall is large enough to show up in factory-siting decisions in South Carolina, Alabama and Michigan, where German car and chemical plants have been the story for two decades.

The two moves are linked. A firm that faces a higher US tariff wall and a Chinese rival priced to win in third markets will spend the next capital budget in the place where it can still sell and still learn. For a large share of German industry that place, in the first half of 2026, was China.

Policymakers who want de-risking now have a hard print against them. Firms voted with the Bundesbank ledger, not with the communiqué. The next test is whether the second half of 2026 repeats the split or whether a tariff truce, or an EU tariff of the kind Matthes wants, changes the arithmetic before the year closes.