German Investment Shifted Toward China as U.S. Outlays Fell in H1 2026

German companies’ overseas investment patterns diverged sharply in the first half of 2026. An analysis by the German Economic Institute (IW), using Bundesbank data, found that firms invested an additional €5.6 billion in China—around one-third more than in the first half of 2025—while direct investment in the United States dropped nearly two-thirds year on year to €4.3 billion, its lowest first-half level since 2023. 17 1

The contrast is significant, but it needs careful interpretation: the €5.6 billion refers to the additional investment in China during the period, not a total stock of investment or necessarily a one-for-one rerouting of U.S. capital. IW said the China figure was broadly consistent with the average half-year level from 2020 through 2025. 17

What the IW analysis found

The two headline figures describe very different trajectories:

• China: German companies added about €5.6 billion in direct investment in the first six months of 2026, roughly one-third above the comparable 2025 period. 17
• United States: German direct investment fell to about €4.3 billion, nearly two-thirds below the prior-year period and nearly 80% below the first half of 2024. 1
• Longer-run context: Despite the year-on-year increase, China investment was not unusually high relative to recent half-year levels; IW put the 2020–25 half-year average at the same €5.6 billion. 17

That distinction matters. The data show a pronounced weakening of German investment in the U.S. alongside continued investment in China, rather than conclusive evidence of a historic or wholesale reallocation of German production.

Why U.S. investment fell

Reuters reported that IW linked the U.S. decline to uncertainty in transatlantic economic relations and the policy environment under the Trump administration. Tariffs and trade-policy uncertainty can make it harder for companies to assess the economics of new factories, acquisitions, and supply-chain commitments. 1

The result was a three-year low for German direct investment in the United States in a first-half period. The nearly 80% decline from the first half of 2024 underscores how large the pullback was, even if direct-investment flows can be volatile from period to period. 1

Why German firms keep investing in China

IW economist Jürgen Matthes argued that German companies have limited choice but to continue investing in China if they want to remain competitive in the market. 17 For multinational manufacturers, China is both a major sales market and a place where local production and development can be necessary to compete with domestic rivals.

IW also pointed to Chinese state subsidies and an undervalued yuan as factors that can make production in China comparatively cheap. Those are IW’s interpretations of the competitive environment—not causal conclusions that can be established by the investment-flow data alone.

The underlying trend predates the first-half 2026 figures. German corporate investment in China exceeded €7 billion in 2025, reaching a four-year high, according to IW data reported by Reuters.

Trade ties make the investment debate more consequential

China remained Germany’s largest trading partner in the first half of 2026. Total goods trade between the two countries reached €125.5 billion, just ahead of the United States at €123.7 billion, according to Germany’s Federal Statistical Office.

That commercial scale helps explain why businesses may continue to expand locally even as political and economic concerns rise. It also means Germany faces a difficult balancing act: firms want access to a major market, while policymakers worry about dependencies, competition, and the resilience of domestic industry.

What the figures do—and do not—say about European manufacturing

The investment data add weight to concerns about Europe’s industrial competitiveness, particularly where Chinese manufacturers are rapidly expanding capacity and competing on price. German automakers, for example, have faced pressure from weakening sales in China, intensifying competition, and transatlantic trade tensions.

Still, the data alone do not prove that German jobs or factories are moving to China, that subsidies or exchange rates caused the reported investment increase, or that every euro not invested in the U.S. was redirected to China. Direct investment can include retained earnings, equity transactions, and financing within corporate groups—not only the construction of new plants.

The policy question is therefore broader than one half-year of flows. European policymakers must decide how to respond to allegations of distorted competition and strategic dependency while considering the costs of retaliation and the commercial importance of the Chinese market. The IW findings clarify the scale of German firms’ exposure to both markets; they do not determine whether countervailing tariffs, investment screening, or other policies are the best response.