The tempo at which German industry is losing ground to Chinese industry is staggering. Just as Chancellor Merz and the ruling coalition are unable to resist and attempt to tear the country out of the grip of the Middle Kingdom, which is growing ever stronger. "Between 2019 and 2025, approximately 400,000 jobs disappeared from German industry solely due to China," is an alarming conclusion contained in a report published by the Institute of the German Economy (IW) on June 30. The document's title reads: "China's Contribution to Deindustrialization – Estimated Data." It was entirely dedicated to what the Middle Kingdom has done to the German economy. The final conclusions, though long, can be reduced to one sentence from the report, which reads: "Available evidence and estimates strongly suggest that most deindustrialization since 2019 is caused by Chinese competition." However, the documented causes of the collapse affecting German industrial production and local corporations are shocking only when compared to the stance of Chancellor Friedrich Merz's government.
Hungry Constrictor
Fans of Rudyard Kipling's prose will probably remember one of the characters from "The Jungle Book," the snake Kaa. He mastered the art of hypnosis, and when he felt the need to eat something, he appeared before a troop of monkeys to demonstrate – as Kipling described it – "the great hungry dance" (not to be confused with the burning dance). The movements and words of the hungry reptile put their victims into a state of hypnotic paralysis. Then Kaa invited dinner closer and closer. He knew what awaited him, but could do nothing against the will of the snake. Until he settled in its embrace and lost the chance to save himself.
Returning to China, the situation forces it to intensify its "great hunger dance." Two decades before the outbreak of the pandemic, the most important driving forces of economic growth were construction investments with the Great Wall. Although China became the factory of the world, infrastructure and housing construction remained a key component of China's GDP. Until the great collapse on the real estate market occurred. Then, for Beijing, increasing industrial production and exports became a priority. In 2019, its value was 2.4 billion USD, and in 2025 it will be 3.7 billion USD. This was accompanied by the expansion of production capacity in factories in the country, which already generate over 30 percent of world production.
```htmlThis crazy development was recently accompanied by an increase in domestic consumption. However, since the beginning of 2026, Chinese people have consumed 0.6% less goods year-on-year. Investment levels have also decreased, by as much as 4.1%. This is happening at a time when local manufacturers are still waging a fierce price war. The situation has escalated to the point where the state leadership is beginning to react. First was the automotive market. Here, demand fell the most, by as much as 20%. The Chinese Ministry of Industry therefore began at the beginning of July to revoke licenses for automobile production for subsequent manufacturers. To limit the surplus of supply, which generates price reductions. So far, eight less well-known automotive brands have been affected, including: Brilliance, Haima, and Zotye. That may not be the end, because according to data from the China Association of Automobile Manufacturers (CAAM), 34.4 million passenger and commercial vehicles were produced in the Middle Kingdom in 2025, but factories have a production capacity of around 50 million units.
The same applies to companies producing other technologically advanced products. China is now a huge factory that must conquer foreign markets to avoid collapse, because the domestic market is completely saturated and is beginning to choke from an overabundance of goods. Therefore, exports increased by 15.5% year-on-year in the first five months of 2026, according to the website "tradingeconomics.com". Meanwhile, the United States, starting with Donald Trump's first term, is imposing further tariffs to restrict the flow of Chinese goods. The European Union is tentatively trying to follow a similar path.
However, President Xi Jinping is aware that a slowdown in exports will affect Chinese corporations and could lead to a collapse similar to that in the real estate market. Therefore, Beijing has become a staunch advocate of free trade and an opponent of tariffs. In the event of trade restrictions, it has brandished a "big stick" and begun to wield it, not too strongly, but it would be painful. These include critical raw materials, especially rare earth elements, electronic components, and supply chains. Cutting companies off from Europe and North America brings governments to order and restores faith in free trade. In this way, the Middle Kingdom is dancing its "great hungry dance," and Chinese producers are pushing Western companies out of global markets.
German Misfortune
The biggest misfortune for the Federal Republic of Germany is that its economy was, until recently, something like a "small China." The country's development was driven by exports of technologically advanced industrial products, especially automobiles. The government and corporations suppressed wage increases in order to reduce production costs. The most important corporations could always count on subsidies from the state administration and local governments. The euro, which had a lower value than the German mark would have had if it had remained in circulation in Germany, also proved to be an advantage. Thanks to this, Germany maintained its position as the third-largest exporter in the world, just behind the much larger United States and China. Berlin also recorded a huge trade surplus every year. In the record year of 2015, it was almost 250 billion euros.
On the other side of the world, an economy based on similar pillars emerged. However, everything is many times larger in the Middle Kingdom, including its ambitions. According to the aforementioned IW report, there came a moment when China "got under the skin" of Germany and began to eliminate its mentor, around the year 2020. The pandemic, the disruption of supply chains, the Russian invasion of Ukraine, and the resulting energy crisis in Europe provided an opportunity for this. Beijing controlled the supply chain and guaranteed cheap energy to domestic industry. At the same time, it ensured the weakening of the yuan, which made Chinese products even cheaper.
"As a result, German industrial products (expressed in a single currency) became approximately 40 percent more expensive than Chinese industrial goods from the beginning of 2020 to the beginning of 2026," the IW document emphasizes. We should also add the enormous leap in quality and technological progress that companies from the Middle Kingdom were offering. In addition, Beijing has long provided companies with a "turbocharger" in the form of subsidies. The Organisation for Economic Co-operation and Development (OECD) announced in early June 2026 that up to 60 percent of China's growth in the global market between 2005 and 2023 was achieved thanks to subsidies for Chinese manufacturers from the central government and local provincial authorities.
```"The percentage attributable to the disruption of economic competition is likely significantly above 60%, as the OECD does not record all subsidies in China and also does not take into account the significant undervaluation of the yuan," the IW commented on these data in its report. The addition of further figures proves that due to China's ruthless expansion, the German economy has lost 400,000 industrial jobs. GDP loss was estimated at 4.3%. German companies have also begun to lose hope for a better future.
Hypnotized
Just before the 66th Volkswagen shareholders' meeting, "Manager Magazin" revealed the results of an anonymous survey conducted among members of the company's board. Out of nine people, six of the presidents turned out to be deeply pessimistic, judging that the corporation's future is threatened and that it may not survive the coming years. Only three expressed a mild hope that they would emerge from the situation without harm.
So far, it has been concluded that in the interest of saving Volkswagen, an agreement was reached with the German government and trade unions in December 2024, and 35,000 employees were laid off. Employees, that is too little. After the shareholders' meeting, a recovery program was announced consisting of the cancellation of approximately 100,000 jobs (i.e., the dismissal of nearly one-sixth of the workforce) and the closure of four factories in Germany. The fall of the key German conglomerate is nothing unusual. It has collided with the expansion of Chinese automotive companies and, after a knockout blow, is staggering like a boxer. Mercedes-Benz, Bosch, Audi, Siemens, Thyssenkrupp, and many other companies are experiencing similar difficulties. Their employees are also living in growing fear.
"Economists are also concerned, speaking of a second Chinese shock, referring to the debate from the early 21st century - then rapidly growing Chinese production first created significant pressure on jobs and prices in Western industry, as China became a low-cost exporter on world markets. Then the main victims were the United States; this time Germany is especially affected," readers of the "Handelsblatt" newspaper reported on June 26. It adds that "after meeting with employers and employees at the Chancellery at the beginning of the month, Chancellor Friedrich Merz is also convinced that Europe must defend itself against unfair competitive practices."
But time passes, and the politician known for first announcing ambitious goals and then quietly retreating from them whenever he encounters resistance still changes nothing. The CDU/CSU-SPD coalition has been discussing what to do about the "China shock 2.0" for a month, and nothing suggests that anything constructive will come of it. Berlin is afraid of entering a trade war with Beijing and pushing the European Union into it. Then China will strike harder with its raw material and technological "big stick". At the same time, awareness is growing that Merz's plan for internal reform may not bring the expected results.
"The key is that even far-reaching reforms will probably not revive the growth engine as long as Germany suffers from such a huge imbalance of costs compared to China," emphasizes "Handelsblatt". Chinese goods will remain cheaper and no worse than German ones. Berlin will therefore either decide to stand up to Beijing or will witness the slow agony of the German industry. For now, it resembles a hypnotized ape, aware of reality but still helplessly marching towards the embrace of the Kaa snake.
Andrzej Krajewski