In a significant shift from their longstanding economic partnership, German companies are feeling the pressure as Chinese competition intensifies. Companies like Webasto, a global leader in manufacturing sunroofs, heating systems, air-conditioning, and batteries for carmakers, are now facing declining demand and heightened competition.

Over the past couple of years, Webasto announced its plan to cut 1,600 jobs from its global workforce as the competition in the automotive supply industry in China becomes tougher. Webasto's chairman, Holger Engelmann, cited the influx of new market participants, especially Chinese manufacturers with in-house suppliers, as a key factor.

The decline in demand for Webasto's products, leading to a stagnation in sales in 2020 and a decline in 2023 compared to the previous year, reflects a larger trend in Sino-German trade. The complementary relationship between the two countries, which had enriched both sides for over two decades, seems to be waning.

German Chancellor Olaf Scholz's recent visit to China indicates an intensifying debate on how Berlin should engage with Beijing in the future. While some big companies, such as Volkswagen, are increasing their investments in China, others argue for caution due to concerns over unfair competition. German automotive lobbyist Andreas Rade expressed skepticism about the European Union investigation into Chinese electric vehicle subsidies.

However, many businesses on the front lines disagree. As China's manufacturing industry has become more sophisticated, German suppliers and customers are now facing fierce competition. The German automotive industry's slow embrace of electric vehicles, coupled with China's impressive rise in this sector, presents a new set of challenges.

The impact is not limited to specific industries. German exports to China have been plummeting, with a 4.2% decline in 2023 and a further 16.6% slump in the first quarter of 2024. A report by research group Rhodium highlighted the risk of German companies losing market share in China and facing significant pressure from Chinese competitors in other markets.

The situation has led to increased concerns about job losses and its potential backlash. Major German companies, including BASF, Bosch, Mercedes-Benz, Volkswagen, and ZF Friedrichshafen, have announced job cuts in Germany while expanding their investments in China. Trade unions describe this trend as a detrimental signal for Germany's position as an industrial hub.

Ulrich Ackermann, the managing director of foreign trade at the Mechanical Engineering Industry Association (VDMA), expresses deep concern about German machinery makers being attacked on multiple fronts by relentless Chinese competitors. Not only are they being outmuscled in the Chinese market, but Chinese products are also making inroads into Europe, causing further disruptions.

The issue of China's manufacturing surplus, which has risen to 2% of global GDP, has become a focal point for governments worldwide. The EU has published a report accusing Beijing of "distortions" in key economic sectors, prompting concerns about unfair competition. Suggestions for political interventions, such as anti-dumping measures and punitive tariffs, have emerged as potential solutions.

As Germany's political classes slowly come to terms with the changing dynamics, economists like Volkmar Baur warn that China's economic model is unlikely to change. In the face of these challenges, Germany must respond strategically to protect its industries.

The current situation serves as a wakeup call for German companies, signaling a fundamental shift in the Sino-German economic relationship. It remains to be seen how Berlin will navigate these new challenges and whether the once-thriving economic marriage will be replaced by a more competitive landscape in the years to come.