As global economic and geopolitical uncertainty deepens in 2025, German companies are increasingly rethinking where to deploy capital. With policy volatility weighing on the United States, China is gaining ground as a more predictable and strategically attractive investment destination.
Data from the German Economic Institute show that German direct investment in the United States dropped by around 45% year-on-year between February and November 2025. Over the same period, German investment in China rose by more than 50%, highlighting a clear shift in corporate priorities.
U.S. Policy Volatility Undermines Investment Confidence
The shift is not limited to statistics. Interviews with German executives in Berlin, Munich, and other major business centers reveal growing caution toward the U.S. market. “Uncertainty” has become a recurring theme, as companies struggle to assess the medium- to long-term direction of U.S. economic and trade policies.
Samina Sultan, an economist at the institute, noted that heightened uncertainty has a direct dampening effect on both investment and trade. She explained that frequent policy adjustments in the U.S. are weakening business confidence and gradually eroding the country’s appeal as a destination for long-term foreign investment.
The financial impact is already evident. Speaking at the World Economic Forum in Davos in 2026, Oliver Blume, Chairman of Volkswagen Group, said tariff-related costs had reduced the group’s profits by about €2.1 billion in the first three quarters of 2025. He warned that without a meaningful reduction in U.S. tariffs, further investment would be difficult to justify, and plans for a new Audi plant could be delayed.
Renowned economist Hermann Simon, often described as the father of the “Hidden Champions” theory, emphasized that policy volatility is one of the biggest concerns for companies. Frequent changes in tariff policy, he said, prevent markets from forming stable expectations, undermining confidence in long-term investment decisions.
China Attracts German Capital with Stability and Scale
In contrast, China’s investment appeal continues to strengthen. According to the institute, new German direct investment in China reached approximately €7 billion in 2025, up from around €4.5 billion the previous year.
Juergen Matthes, an expert at the institute, observed that German companies are not only expanding their presence in China but are also accelerating the pace of investment. This reflects growing confidence in China’s market fundamentals and policy environment.
Michael Schumann, chairman of the German Federal Association for Economic Development and Foreign Trade, attributed this trend to China’s comprehensive industrial ecosystem and relatively stable policy framework. These factors, he said, allow companies to plan further ahead and operate with greater certainty.
Longer-term data support this assessment. Based on figures from the Deutsche Bundesbank, Germany’s annual new direct investment in China averaged around €6 billion between 2010 and 2024, with a significant share coming from the reinvestment of profits generated locally.
Deeper Localization Becomes the New Strategy
German companies are also moving beyond initial market entry toward deeper integration in China. Increasingly, firms are localizing key operations such as procurement, supply chains, and research and development.
A clear example is Volkswagen’s full-process R&D and testing center launched last November in Hefei, Anhui Province. The facility enables complete vehicle platform development outside Germany, from concept design to market launch. This has shortened development cycles by about 30%, allowing the company to respond more quickly to changing market demand.
Business confidence remains strong. In its 2025/2026 business confidence survey, the German Chamber of Commerce in China reported that 93% of German companies plan to remain active in the Chinese market. Meanwhile, 65% of respondents said they are confident about China’s economic development over the next five years.
Maximilian Butek, executive director and board member of AHK China for East China, noted that research and development has become a key focus of German investment over the past two years. This approach, he said, reflects not only cost considerations but also early positioning for future global competition.
