China shock: Rivalry tests Merz and German economy in World Economy News 26/02/2026 China’s rise from poverty to the world’s secondlargest economy rewrote the rules of globalization. Now Beijing’s push into high-end technology is unfolding at an even faster pace. While the United States and United Kingdom had decades to absorb the first China shock at the turn of the century, those confronting the second — above all Germany — have had far less notice. An obvious sign that Beijing’s huge investments in high-tech were paying off emerged shortly after the first Chinese electric vehicles (EVs) rolled off transporters across Europe in 2023. While few believed they would make serious inroads against Germany’s legacy carmakers, just over two years later, China’s rivals have become a disruptive force in the European market. Germany loses ground in world’s biggest car market The likes of Volkswagen, BMW and Mercedes-Benz have recently issued profit warnings as sales come under pressure, both in China and closer to home. German vehicle exports to China have plummeted by two-thirds since 2022, data from the EU’s statistics agency Eurostat shows. The rivalry, which has spread from carmaking to other industrial sectors, is visible in Germany’s broader trade performance. Last year, goods exports to China fell by 9.3% to €81.8 billion ($97 billion), their lowest level in a decade, while Chinese imports surged. “Germany is at the heart of the second China shock,” Andrew Small, director of the Asia program at the European Council on Foreign Relations (ECFR), told DW. “The two economies used to be complementary; they’re now functioning as competitors.” German exports to China in a ‘structural decline’ This month, the Rhodium Group, a New York-based research house specializing in China, warned that Germany’s outbound trade with China has entered a “structural decline” and that, unless industry finds alternative markets, the wave of bankruptcies and job cuts Germany is witnessing “is likely to accelerate.” In its research paper “Germany’s ‘China Shock’ Revisited,” Rhodium noted that Chinese rivals are capturing market share from German producers in machinery, chemicals and power-generation systems. “The Chinese market used to be a goldmine for German multinationals,” the paper’s co-author and Rhodium’s senior advisor on China, Noah Barkin, told DW. “But in the last three years, a quarter of German exports [to China] have disappeared.” China was for many years Germany’s largest or second-largest export destination, but in 2024 it fell to fifth place and was forecast by Germany Trade & Invest (GTAI) to drop to seventh last year. Chinese rivals threaten non-EU markets The pressure on German industry is no longer confined to China. Competition in third markets from Chinese rivals has also intensified. Barkin noted how in parts of Asia, Latin America and Africa, China is “making huge gains against German companies … [by] offering much cheaper products.” As Germany’s chancellor, Friedrich Merz, makes his first official visit to China this week, he’s expected to walk a fine line between reaffirming China’s importance to German industry while urging Beijing to address longstanding concerns over market access and overcapacity. Both sides are seeking a reset in bilateral ties, which have been strained since the pandemic highlighted Germany’s dependence on Chinese parts and raw materials. This sparked several years of derisking from some Chinese suppliers. Merz’s vis