German firms put €5.6 billion into China in six months as US spending fell 65 percent

German companies invested about €5.6 billion in China in the first half of 2026, a third more than in the same period of 2025 and in line with the 2020-2025 half-year average, the German Economic Institute reported on the basis of Bundesbank data. Direct investment in the United States over the same six months was about €4.3 billion, down 65 percent from a year earlier and nearly 80 percent below the first half of 2024, the last such period before Donald Trump returned to the White House.

IW economist Juergen Matthes, the author of the China note, said German firms have little choice but to keep spending in China. He described the country as a major sales market and as a gym in which companies build the muscle they need against Chinese rivals in third markets. He also said state subsidies and an undervalued yuan make production in China artificially cheap, which pulls more of the value chain east. "For Germany, this means production and jobs are shifting to China," he said. He argued that the European Union should answer with countervailing tariffs on Chinese imports.

The China figure is a flow, not a stock. It includes new equity and, in related IW work, large sums of reinvested earnings. Reinvested profits in China were €7.8 billion across 2025, a year in which German firms put about €7 billion into the country in total. That pattern, profits earned in China staying in China, is how a company can look as if it is "de-risking" in speeches while still deepening the plant network that actually produces the cars, chemicals and machine tools.

A German Chamber of Commerce in China survey, cited alongside the IW numbers, found that 61 percent of German firms already in China plan to raise investment over the next two years. That is the micro signal that matches the macro print. The firms that can still hold share in the Chinese market are the ones that also expect to hold share in Europe and in the rest of Asia. The firms that leave discover that the competitor they fled is waiting in the export market with a lower cost base.

The US collapse in the same table is the other half of the story. Tariffs, unpredictable reviews and the cost of serving an American customer from a German plant have delayed or cancelled projects that would have shown up as first-half outflows. €4.3 billion is not an exit. It is a freeze relative to the €15.8 billion first-half average that IW has used as a pre-shock benchmark. If the freeze lasts through 2027, the United States stops being the default second factory after Germany and becomes a political option that boards approve only with a premium.

The contradiction for Berlin and Brussels is now numerical. European policy papers still talk about reducing dependence on China. The Bundesbank ledger for January to June shows China overtaking the United States as the top destination for German outbound investment. Matthes wants tariffs to break that pattern. The companies that filed the investment numbers are, for the moment, voting the other way with cash they have already spent.