Finbarr Bermingham

The great slowdown: Germany at a standstill as ‘China shock’ hits

As Europe’s biggest economy is pummelled by structural problems and external threats, rocky China ties are compounding the dreary picture

My report from a rather depressing week in Berlin

It is not unusual for Berlin to be cloaked in a blanket of grey on the brink of winter. What hangs over the city this year, however, feels heavier.

This new shade of gloom cuts through conversations about everything.

Germany’s coalition government is just six months old, but already some are wondering how long it can last. The economy is no larger now than it was five years ago and is being pummelled by a heady brew of structural problems and external threats.

The German foreign minister warned that Nato could be attacked by Russia within four years. Relations with China, meanwhile, are on the rocks.

“I was not prepared for the kind of pessimism that I come across here,” said Joerg Wuttke, once Europe’s top business lobbyist in China

When listing the many problems facing Germany, it is difficult to know where to start. The industrial economy is haemorrhaging 10,000 jobs a month, Berlin says

For the first time since records began, manufacturing contributed under 20% to Germany’s economy last yr, per Eurostat

Industrialists gripe that working cultures, energy costs and bureaucracy are killing the country’s competitiveness.

ILO statistics show that the average German works 29.6 hours a week, compared with 36.1 hours in the United States and 44.8 hours in China.

Studies show that industrial electricity prices in Germany are around three times higher than those in the US and China, amid the dual shock of the nuclear phase-out and the collapse of Russian gas supplies.

Compounding this dreary picture is Beijing.

“The pessimism is towards domestic economic circumstance in this country, but along with the noise level about the US tariffs, the Ukraine-Russia war … it actually distracts our leadership from a much bigger problem … China,” Wuttke said on the margins of a conference in Berlin

For decades, Sino-German trade was a match made in heaven. German factories provided the machines to kit out the workshop of the world, while China’s increasingly rich consumers favoured German cars.

During the boom times, China could rely on Berlin to water down Brussels’ moves to clamp down on its alleged trade malpractice, but now German politicians increasingly talk a tougher game.

“We haven’t grown in five years and have had no strategic direction for 16,” said one government official. “We cannot wish those lost years away, but we need to do something now.”

Many economists are increasingly convinced Europe’s largest economy is in the grips of a China shock. Chinese buyers and suppliers have become cutthroat competitors. German exports to China have been dropping like a stone, China’s exports to Germany hurtle in the other direction

In October 2015, Germany ran a US$630 million trade surplus with China.

By October 2025, it flipped to a US$1.78 billion deficit, a swing of 338% in the last decade. In the first 10 months of this year alone, China’s trade surplus with Germany soared 121% vs a year earlier.

“The China shock is now macro-critical for Germany: the collapse in German exports to China since the peak already amounts to a hit of roughly 1 per cent of GDP,” said @SanderTordoir, chief economist at the Centre for European Reform.

Industry insiders find it hard to establish where one problem ends and the other begins: Germany’s structural problems are hamstringing efforts to compete with China’s industrial prowess, which is in turn compounding Germany’s industrial competitiveness.

Beijing’s tight controls on exports of rare earths and other minerals critical to German industry have further blurred the lines.

“We could live with the competition from China if we were more competitive here,” said one businessperson, who spoke on condition of anonymity.

Wuttke, now based in Washington after more than 30 years in Beijing, said Chinese competition was fierce, but the weak consumption levels in the country were further hampering German industry.

“The Chinese economy is softening at the same time as a tsunami of Chinese goods are entering the European market and other markets, meaning that we are running a real risk of losing our industrial landscape to the Chinese if you don’t act now,” he said.

On the geopolitical front, things are scarcely better.

China’s close ties with Russia are a perennial poison pill in relations with Europe. German officials keep asking Beijing to use its influence to rein Moscow in, even if expectations are low after nearly 4 years of asking

In Berlin and Brussels, officials notice a swagger to Beijing that has grown over the year. Having forced Trump to climb down on tariffs, Chinese diplomats care less about pleas on Ukraine.

Sanctions on Chinese firms for backing Moscow’s war machine make it more likely, not less, that Beijing will send major military support to Russia, European diplomats have been told.

German foreign minister Johann Wadephul will raise the issue again when he goes to China on Monday, after postponing a trip in October due to a lack of productive meetings.

Berlin sources believe his scheduling issues arose from comments made during a trip to Japan, when he criticised Beijing for “increasingly aggressive behaviour in the Taiwan Strait and the East and South China seas” and for its support of Russia in Ukraine.

The trip's been rearranged but China has pushed Wadephul to “correct his views” &amp; stop talking about Taiwan

Berlin estimates any disruption in Taiwan Strait would shave up to 10% off EU economy, so insists it's a “core issue”. Agreeing to be silent would be a “slippery slope”

Other European capitals see Beijing trying to create an environment in which no commentary on Taipei is countenanced.

Wadephul wants to lay the groundwork for Merz’s first state visit to China next year, with President Frank-Walter Steinmeier expected to follow later in 2026.

Insiders were pleased that Vice-Chancellor Lars Klingbeil’s recent visit went smoothly.

In a sign of how low the bar was, there was relief that the Social Democrat did not openly contradict his conservative coalition partners on major issues.

Taken together, these pressures expose a deeper problem: Germany cannot adjust quickly enough.

Its paralysis reflects a broader malaise in Europe: problems so vast that governments appear frozen between diagnosis &amp; delivery. In Germany, the inertia appears particularly acute.

On the morning the Dutch government used a Cold War-era law to seize control of Chinese-owned chipmaker Nexperia, it wanted to give Berlin a heads-up. The company has a fabrication facility in Hamburg, and Germany’s car industry would be affected by any blowback.

After trying all day to get in front of the right officials, an audience was finally granted after business hours, by which time the order had already been given.

The Dutch then worried that Nexperia’s Chinese owners would start shipping equipment from Hamburg to China and asked the German government to help. Frustrated by the sluggish response, they resorted to calling the local police and asking them to keep watch at the plant.

Meanwhile, in closed-door meetings, German car companies have lobbied The Hague to reinstate Nexperia’s Chinese management, which was ousted by an independent Dutch court, highlighting divisions in European industrial circles on one of its biggest supply crises since the pandemic