Germany's Strategic Push for Fair Trade with China: Opportunities for European Investors in a Shifting Geoeconomic Landscape

Germany's recalibration of its economic relationship with China has entered a critical phase, marked by high-level diplomacy, strategic de-risking, and a reevaluation of supply chain dependencies. As Vice Chancellor Lars Klingbeil's recent trip to Beijing underscores, Berlin is seeking to balance its economic interests with the need to mitigate risks in raw materials and electric vehicle (EV) markets. For European investors, this evolving dynamic presents both challenges and opportunities, particularly as Germany navigates a path between reducing overreliance on Chinese inputs and preserving access to its vast market.

The Strategic Shift in Germany-China Trade Relations

Germany's approach to China has transitioned from a "win-win" model of mutual economic benefit to a more cautious strategy of "de-risking," as outlined in its 2023 China strategy. This shift reflects growing concerns over China's dominance in critical sectors such as rare earths, semiconductors, and EVs. According to a report by , Klingbeil's November 2025 visit to Beijing aimed to address trade tensions and supply chain vulnerabilities, with a focus on securing equitable access to raw materials and curbing Chinese overcapacity in steel and EV production. His discussions with Chinese officials, including Vice Premier He Lifeng, highlighted the urgency of stabilizing supply chains for automotive chips and rare earths-sectors where China's export controls have exposed Germany's vulnerabilities according to Reuters.

This strategic pivot aligns with broader EU efforts to reduce dependencies on China for critical infrastructure and technology. However, Germany's dual role as a major economic power and a key geopolitical actor complicates its approach. While Berlin has tightened investment screening laws and excluded Chinese firms from 5G infrastructure, it continues to advocate for maintaining access to the Chinese market, with over 90% of German businesses in China planning to expand operations.

Raw Materials and Supply Chain Resilience

Germany's reliance on China for critical raw materials remains a focal point of its de-risking strategy. The country imports approximately 80% of its rare earths from China, a dependency that has been exacerbated by Beijing's export restrictions according to Reuters. An expert commission established by the German government has recommended diversifying supply chains and accelerating domestic processing capabilities to reduce exposure to geopolitical shocks as reported by Reuters.

For investors, this push for resilience could drive capital into European projects focused on recycling rare earths, developing alternative materials, and securing secondary sources in countries like the U.S. and Australia. However, the transition will require significant upfront investment and policy coordination. As noted in a Bruegel policy brief, China's control over refining and processing of lithium, nickel, and cobalt gives it a strategic lever that could disrupt European EV and battery manufacturing.

The EV Market: Competition and Collaboration

The EV sector exemplifies the tension between Germany's economic interests and its strategic concerns. Chinese automakers now account for 25% of EU EV sales, with state-subsidized investments in battery production and assembly facilities reshaping the competitive landscape. Flagship projects like Contemporary Amperex Technology Co. Ltd. (CATL)'s €7.3 billion gigafactory in Hungary and Envision AESC's €2 billion plant in France underscore China's deepening footprint in Europe's EV value chain according to Bruegel analysis.

While these investments offer opportunities to boost production capacity and transfer innovation, they also raise concerns about long-term dependence on Chinese technology and potential data security risks. The European Commission's Foreign Subsidies Regulation (FSR), introduced to address market distortions linked to Chinese state support, has added a layer of scrutiny to such investments according to Bruegel analysis. However, national-level policies remain fragmented, with countries like Hungary offering substantial state aid to attract Chinese capital while others impose stricter conditions as detailed in Bruegel reports.

For European investors, the EV sector presents a paradox: Chinese firms offer cost advantages and technological expertise, but their dominance could erode the competitiveness of European automakers like Volkswagen and BMW. Klingbeil's negotiations with Beijing may help establish clearer rules for fair competition, but the outcome will depend on Germany's ability to balance its industrial interests with broader EU objectives.

Investment Implications for European Equities and Infrastructure

The de-risking strategy and China negotiations are reshaping investment flows across European equities and infrastructure. Sectors most exposed to supply chain vulnerabilities-such as automotive, semiconductors, and battery manufacturing-are likely to see increased capital allocation toward diversification and resilience. For example, European banks and institutional investors may prioritize funding for domestic rare earth processing plants or partnerships with non-Chinese suppliers in North America and Africa.

Infrastructure investments in EV charging networks and green hydrogen projects could also benefit from a more stable trade environment. However, the success of these initiatives hinges on policy alignment within the EU. As the Bruegel report highlights, a fragmented approach to Chinese investments undermines the EU's collective bargaining power and complicates the alignment of foreign capital with climate and security goals.

Investors should also monitor the impact of U.S. tariffs and regulatory barriers on global trade patterns. These developments could accelerate the shift of manufacturing to Europe, creating opportunities in sectors that align with both the EU's green transition and its strategic autonomy goals.

The Path Forward for Investors

Germany's strategic push for fair trade with China is a work in progress, with Klingbeil's diplomacy signaling a commitment to addressing supply chain risks while preserving market access. For European investors, the key will be to navigate the dual imperatives of resilience and competitiveness. This means:
1. Diversifying supply chains by investing in alternative sources of raw materials and domestic processing capabilities.
2. Supporting innovation in EV and battery technologies to counter Chinese overcapacity.
3. Advocating for coordinated EU policies to harmonize investment screening and trade defenses.

As the EU grapples with its evolving relationship with China, Germany's leadership will play a pivotal role in shaping the geoeconomic landscape. Investors who align their strategies with this transition-balancing risk mitigation with growth opportunities-will be well-positioned to thrive in an era of strategic competition.