German Companies Plan More Investment in China: Hiring and Workforce Strategy in 2026

China Market Entry & Employment

German businesses in China are showing greater willingness to invest, but the trend is less a return to unrestricted optimism than a shift toward deeper localization, faster decision-making and more resilient local operations.

Published by China Payroll | 2026

German companies operating in China are showing a stronger willingness to invest even as geopolitical and commercial risks remain elevated. According to the German Chamber of Commerce in China’s May 2026 Flash Survey, 61% of respondents plan to increase their investment in China over the next two years, up from 53% in the previous year and the highest level reported since 2023.

Expectations for turnover, profitability and industry conditions also improved. Yet these results should not be read as a simple return to broad-based optimism. Many businesses continue to face trade uncertainty, higher logistics and supply costs, intensifying local competition and weaker demand in some sectors.

The more useful interpretation is that German companies are becoming more deliberate about China. Rather than stepping back, many are localizing production, sourcing, research, decision-making and workforce capabilities so that they can compete more effectively in the Chinese market and manage disruption across global supply chains.

German business confidence in China is improving

The survey was conducted from April 15 to April 21, 2026, with responses from 216 member companies of the German Chamber of Commerce in China. Its findings show a measured improvement in business sentiment:

• 61% plan to increase investment in China during the next two years, compared with 53% in the prior-year survey.
• 42% expect turnover to increase by the end of 2026, up from 29% in 2025.
• 29% expect higher profits in 2026, an increase of 11 percentage points from the prior year.
• 34% report improving conditions in their industry, compared with 19% in 2025.
• 11% plan to reduce investment, three percentage points fewer than in the previous year.

These are investment intentions and business expectations, not a complete measure of all German investment flowing into China. The sample also represents Chamber member companies rather than every German company with China-related activity. Nevertheless, the survey provides a timely view of how established German businesses are responding to current market conditions.

Why might German companies plan further investment in China?

Access to a large and evolving market

China remains a major market for German companies in advanced manufacturing, automotive technology, industrial automation, chemicals, consumer products, healthcare and green technology. Growth is no longer uniform across industries, and competition has become significantly more demanding. Even so, the scale of the market, depth of supplier networks and pace of product development continue to make China strategically important.

For businesses already serving Chinese customers, withdrawing or managing the market mainly from Europe can reduce speed and weaken customer relationships. Selective local investment can therefore be more practical than maintaining a purely export-led model.

An “In China, for China” operating model

Many multinational companies are moving toward an “In China, for China” strategy: products for Chinese customers are increasingly researched, designed, sourced, manufactured and supported within China. This approach can shorten lead times, improve alignment with local customer requirements and reduce exposure to cross-border disruption.

Localization also changes workforce needs. A local operation may require more than sales representatives. Companies often need engineers, supply-chain managers, quality specialists, finance and HR professionals, local leadership and customer-support teams with the authority to make decisions quickly.

Faster product development and local decisions

Chinese competitors frequently operate with short development cycles and highly responsive commercial teams. German companies that rely on multiple layers of overseas approval may find it difficult to match that pace. Strengthening local management and technical teams can bring decision-making closer to customers and suppliers, accelerate product adaptation and improve accountability for China results.

Supply-chain and geopolitical resilience

Not every new investment is driven by higher expected demand. Some investments are defensive: companies may be duplicating capabilities, securing alternative suppliers or localizing production to reduce the impact of tariffs, export controls and transportation disruption. In this context, local investment can support resilience even when the broader economic outlook remains uncertain.

The outlook is more positive—but risks remain

The same survey that shows stronger investment intentions also documents substantial external pressure. Three quarters of respondents said the Iran war was affecting their operations, primarily through higher logistics and supply costs. Companies also reported significant exposure to developments in US–China and EU–China relations.

This combination—greater willingness to invest alongside persistent risk—is important. It suggests that businesses are not simply assuming conditions will become easier. They are adjusting their operating models to compete and remain resilient in a more fragmented global environment.

Companies considering their own China expansion should therefore avoid basing a decision on a single confidence indicator. Investment planning should reflect the target market, customer pipeline, supply-chain position, workforce requirements, intellectual-property considerations and the company’s desired level of local control.

What greater localization means for hiring in China

Once a company decides to build more capability in China, strategy quickly becomes an employment and compliance question. The practical requirements can differ by city and employee profile, but commonly include:

• Benchmarking base salary, incentives, allowances and total employment cost;
• Preparing a compliant Chinese-language employment contract and local policies;
• Calculating and withholding individual income tax;
• Registering and contributing to social insurance and the housing provident fund;
• Designing probation, working-time, leave and termination procedures;
• Managing monthly payroll, payslips and employee reimbursements;
• Protecting confidential information and intellectual property; and
• Coordinating onboarding and offboarding across different Chinese cities.

Local variations matter. Social-benefit contribution bases, housing-fund practices, administrative procedures and market compensation can differ between Shanghai, Beijing, Shenzhen, Guangzhou and other cities. Companies should determine where an employee will actually work before finalizing the employment model or total-cost estimate.

China entity, Employer of Record or contractor?

There is no single structure that is right for every company. The appropriate choice depends on the size of the planned team, the duration and nature of the work, whether the company will conduct regulated or revenue-generating activities, and its long-term China strategy.

An EOR can be particularly useful when a German or other international company has identified its first employee in China but is not yet ready to establish an entity. The EOR becomes the local legal employer and manages agreed employment administration while the client directs the employee’s day-to-day commercial work. As the team grows, the company can reassess whether establishing its own entity is more suitable.

A practical China hiring checklist

1. Confirm the work location. Identify the city where each employee will primarily perform their duties.
2. Define the role and reporting line. Clarify responsibilities, decision authority and whether the position supports customers, suppliers or revenue-generating activity.
3. Benchmark total compensation. Review salary, variable pay, allowances, bonuses and statutory employer costs—not base salary alone.
4. Select the employment model. Compare entity setup, EOR employment and genuine project-based contracting in the context of the company’s operating plan.
5. Prepare compliant documentation. Put the employment contract, policies, confidentiality terms and intellectual-property protections in place before the employee starts.
6. Register payroll and benefits. Establish compliant salary payment, individual income-tax withholding, social insurance and housing-fund processes.
7. Plan the employee lifecycle. Set procedures for probation, leave, expenses, performance management, contract renewal and offboarding.

How China Payroll supports international companies

China Payroll helps German and other international businesses hire, pay and manage employees across China. Support can be tailored for companies that already have a Chinese entity as well as those that need an Employer of Record solution before establishing one.

Our services include:

• China EOR and payroll services;
• Payroll calculation and salary payment;
• Individual income-tax administration;
• Social insurance and housing-fund administration;
• Employee onboarding and offboarding;
• Recruitment and compensation benchmarking; and
• Multi-city workforce support across China.

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