"Best Quality Germany? The Collapse Is Brutal... 10,000 Jobs Lost Each Month as China Takes Over"

Germany's Manufacturing Heart, the Mittelstand, Losing Ground to China

Germany's Capital Goods Trade Balance with China Turns Negative

Price and Quality Pressure Leads to 10,000 Job Losses Every Month

"If We Lose Half Our Machinery Market, We Have No Leverage Left"

Germany's 'Mittelstand' companies, which have supplied machinery to factories around the world based on their reputation for the highest quality, are now losing ground to competition from China.

Photo of a steel factory located in Duisburg, Germany, to help readers understand the article. Photo by Reuters-Yonhap News.

On July 3 (local time), Yonhap News cited the Wall Street Journal (WSJ), reporting that "the 'quality advantage' that has long protected thousands of niche leaders underpinning the German economy is rapidly eroding." The Mittelstand refers to the German middle class and encompasses small and medium-sized enterprises of various sizes. Most of these companies produce and export capital goods and intermediate goods, and many are known as 'hidden champions' for being the global No. 1 in narrow fields.

The clearest sign is the reversal in trade. In advanced capital goods, Germany is now importing more from China than it exports. According to data compiled by Apollo Global Management, Germany's capital goods trade balance with China (12-month moving average) flipped from a surplus of 750 million euros (about 1.3 trillion won) in mid-2024 to a deficit of 500 million euros (about 870 billion won) in August last year. In the first quarter of this year, Germany's exports of machine tools to China also fell by about one-third compared to a year earlier.

Even in Germany, its home market, Mittelstand companies are losing business to Chinese products, leading them to cut workforces or reduce workloads, and relocate production to China and elsewhere. According to an EY report, more than 10,000 jobs have been lost every month in German industry, and industrial output has declined by about 10% since early 2022.

Containers being loaded on the outskirts of Shanghai, China. Photo by Reuters-Yonhap News

In contrast, China's export offensive is fierce. According to Chinese customs statistics, exports to Germany increased by 17% year-on-year through May this year, and by 16% to the European Union as a whole. Facing sluggish domestic demand and inventory surpluses, China pushed aggressively for overseas sales, recording its largest-ever trade surplus last year at 1.2 trillion dollars (about 1,800 trillion won). On top of this, the Chinese government has focused subsidies, tax benefits, and national resources on nurturing 10,000 specialized small and medium-sized enterprises under the 'Little Giants' policy, which observers say is designed to target Germany's hidden champions.

China has not only closed the quality gap, but also cut prices to as low as half those of European competitors. As a result, layoffs are occurring even in small German towns that had never experienced a recession before. Patrick Burckhardt, CEO of Aura, a machinery company in southwestern Germany, told the WSJ, "Competition with China has intensified in the past six months, leading to a halt in orders and growing price pressure." This manufacturer of industrial heating equipment once produced entirely in Germany, but now makes 20% of its products in China. He added, "If nothing changes in Europe, we might increase Chinese production to as much as 70%."

In response, Mittelstand companies are urging the German government and the EU to protect domestic industry from Chinese corporations backed by state support. Oliver Lichterberg, head of foreign trade at the German Mechanical Engineering Industry Association (VDMA), whose member companies employ 1 million people, said, "China already accounts for one-third of global machinery production. If they reach 40-50%, we will have no leverage left."

This content was produced with the assistance of AI translation services.