China's Growing Influence on Germany's Energy and Industrial Supply Chains: Geopolitical Risks and Resilience Strategies

The intricate relationship between China and Germany has long been defined by economic interdependence, but recent developments in energy and industrial supply chains have intensified both opportunities and risks. As Germany accelerates its transition to a low-carbon economy, Chinese investments have become pivotal in advancing green technologies. Yet, these partnerships are increasingly shadowed by geopolitical tensions, regulatory scrutiny, and the urgent need for supply chain resilience.

Strategic Investments and Technological Synergies

Chinese investments in Germany's energy sector have pivoted sharply toward green and digital technologies. By 2024, Chinese foreign direct investment (FDI) in Germany had reached $2.3 billion, with a focus on renewables, hydrogen, and battery technologies. The Sino-German Energy Partnership has institutionalized collaboration in green hydrogen, a sector critical to both nations' decarbonization goals. Joint projects in hydrogen production and infrastructure development reflect a shared vision of reducing carbon footprints while hedging against geopolitical uncertainties.

Chinese firms also dominate global clean energy innovation, accounting for 75% of clean energy patent applications. This expertise is increasingly integrated into Germany's electrification and automation sectors, particularly in battery storage and electric vehicle (EV) manufacturing. However, regulatory challenges loom large. Germany's 2023 China Strategy emphasizes stricter screening of investments in critical sectors, while the European Commission has launched foreign subsidy investigations into Chinese EV manufacturers. These measures signal a cautious approach to balancing strategic collaboration with domestic industrial protection.

Geopolitical Risks and Supply Chain Vulnerabilities

China's dominance in critical raw materials-such as rare earths, gallium, and lithium-poses acute risks to Germany's industrial resilience. In 2024, Beijing imposed temporary export restrictions on rare earths, a move widely interpreted as retaliatory against U.S. semiconductor export controls. Germany, which imports 80% of its rare earths from China, faced immediate disruptions in sectors reliant on these materials, including EVs and microchip manufacturing. While China suspended these restrictions in late 2025 following a trade truce with the U.S., the incident underscored the fragility of supply chains dependent on a single source.

Germany's de-risking strategy, initiated in 2023, aims to reduce reliance on China by diversifying suppliers and securing domestic processing capacity. The European Union's Critical Raw Materials Act has designated projects like Rock Tech Lithium's Guben Converter as "Strategic Projects," providing access to funding and policy support. Such initiatives are vital for building local lithium processing capabilities, yet progress remains uneven. As of 2024, Germany still relies on China for over 50% of 200 product groups, highlighting the challenges of reshaping deeply entrenched supply chains.

Resilience Strategies and Diplomatic Engagement

Germany's response to these vulnerabilities combines regulatory rigor with diplomatic engagement. Under Finance Minister Lars Klingbeil, the country has pursued high-level dialogues with China to address overcapacity in sectors like steel, solar, and EVs. These discussions aim to ensure fair competition while avoiding abrupt disruptions. Simultaneously, Germany has deepened partnerships with alternative suppliers. A 2025 agreement with Canada to cooperate on critical minerals exemplifies this strategy, seeking to diversify sources for materials essential to green technologies.

Domestically, the CRMA and projects like Guben Converter are part of a broader push to localize processing and reduce dependency on external suppliers. Yet, experts caution that complete decoupling from China is neither feasible nor desirable. As one German Economic Institute (IW) study notes, global supply chains are too interlinked to allow for full disengagement. Instead, the focus must shift to building redundancy and fostering innovation in alternative materials.

The Path Forward: Balancing Cooperation and Competition

The future of China-Germany relations in energy and industrial supply chains hinges on navigating a delicate balance. On one hand, collaboration in green hydrogen and clean energy technologies offers mutual benefits, aligning with both nations' climate ambitions. On the other, geopolitical risks-such as export restrictions and overcapacity-demand robust resilience strategies.

For Germany, the key lies in integrating Chinese investments into domestic innovation ecosystems while mitigating risks through diversification and regulatory safeguards. This requires not only securing alternative suppliers but also accelerating domestic production of critical materials. As the European Commission's foreign subsidy investigations demonstrate, transparency and compliance will remain central to managing this complex relationship.

In the coming years, firms that align with national industrial priorities and adapt to evolving regulatory frameworks will likely thrive. However, the path to resilient supply chains will demand sustained investment, international cooperation, and a pragmatic approach to China's dual role as both a strategic partner and a potential risk.