German frontrunner Merz warns companies against China investment

Friedrich Merz, the conservative front-runner in the race to be Germany’s next chancellor, warned domestic companies against making bigger investments in China.

“The decision to invest in China is a decision with great risk,” Merz said at a foreign policy event in Berlin on Thursday. “If you take this risk, do it in such a way that it doesn’t endanger the entire company group if you have to write off this investment from one year to the next.”

The remarks by Merz, whose conservative CDU/CSU bloc is leading in the polls ahead of the Feb 23 snap election, signal a radical change from the China-friendly course of previous German governments.

Following Russia’s invasion of Ukraine, Scholz’s three-party government started to implement what it called a de-risking strategy as part of broader efforts to reset relations with China. Many large German companies, however, have kept their investments in China high despite the government’s warning.  

After years of failed attempts to address long-standing bilateral irritants, including China’s industrial subsidies or the restricted access to its vast market, the European Union (EU) has gradually hardened its stance. Last year, the EU imposed tariffs on electric vehicles from China in a bid to protect domestic industry — a move Chancellor Olaf Scholz opposed. 

Germany relies on exports to support its economy, with China accounting for about a third of car sales for Volkswagen AG, Mercedes-Benz Group AG and BMW AG in 2023. 

Merz made clear that if he becomes chancellor, companies that lose money in China will be on their own.  

“Under no circumstances should you turn to the state, to the federal hovernment of the Federal Republic of Germany, to help you economically in such a situation,” Merz warned investors.