Import-side De-risking from China in the year 2024

Among more than 14,300 8-digit product groups, there are currently only just over 200 with a China import share of at least 50 per cent. This means that Germany's potentially critical import dependency on China – as defined here – is concentrated in a relatively small number of product groups. However, these may still include products with serious critical dependencies, where supply bottlenecks would have relevant negative social or macroeconomic effects.

Among the top 20 most important of these product groups in terms of value, some products with known import dependencies on China stand out. Laptops are by far in the lead with an import value of almost 10 billion euros. In second place are photo elements for solar modules (1.6 billion euros), followed mainly by various IT accessories. In the eighth place, there are permanent magnets made of neodymium (about 400 million euros). These products belong to the broader trade classification section of machinery and mechanical appliances, electrical equipment, etc., which accounts for a total of 80 of the 229 product groups identified here with potentially critical import dependencies on China. At 89, however, most product groups can be found in the chemical products section. This also includes five groups of rare earth metals. But organic chemical products, whose names are often only known to experts, dominate with 65 product groups. As a result, these are potentially critical import dependencies on China for products that are not the usual suspects.

Compared to the previous year, Germany’s potentially critical import dependency on China has hardly changed. Although the total import value has fallen slightly, the number of product groups and the average import share of China have increased slightly. Consequently, there are no signs of a noticeable de-risking of the German economy from China. 

As there is a significant fluctuation in the number of product groups with potentially critical dependencies compared to the previous year also in 2024 (69 groups are no longer, 79 are new in the sample), a core of persistent dependencies is identified. For 77 of the 229 product groups, the share of imports from China has been at least 50 per cent over the last five years (2020 to 2024). The section chemical products also dominate here with 37 product groups, accounting for almost half of the total number of 77, including 28 product groups of organic chemical products. Once again, only experts are familiar with many of these products and can assess their relevance. A further 27 product groups are accounted for by the second largest section of machinery and mechanical appliances, electrical equipment, etc.

In the persistent core of the 77 product groups, German import dependencies on China have not declined, but even slightly increased. In 45 product groups, the share of imports from China in 2024 is higher than the average import share in the four previous years 2020 to 2023, while only 31 groups saw a decline and one product group saw no change. At 7.5 percentage points, the average share increase is also slightly higher than the average decrease of 6.1 percentage points. Consequently, the opposite of de-risking can be observed here.

This type of foreign trade analysis can only identify potentially critical import dependencies. Whether they are truly critical depends on whether the products are indispensable for the company's manufacturing process (or the health of the population) and, at the same time, difficult to replace in the short term. Furthermore, an understanding of the potential overall economic damage is necessary, which includes assessing the effects of production cuts of the affected company as well as possible indirect consequences in the form of resulting production cuts of suppliers and customers of the directly affected company.

Other relevant studies analyzing import dependencies with more sophisticated approaches also do not provide sufficient information concerning the true criticality of import dependencies. The relevant knowledge, especially regarding indispensability and, often also, short-term substitutability, generally lies with the companies themselves. 

The German foreign trade statistics generally would make it possible to identify the companies that import the product groups identified here. However, this approach is blocked even for government agencies by paragraph 16 of the Federal Statistics Act (§ 16 Bundesstatistikgesetz) requiring statistical secrecy. This was certainly justified for a long time, but since the “Zeitenwende” (turn of the times), national economic security has become so important that this objective should take precedence over the legitimate interest of companies in maintaining trade secrets, in well-founded individual cases.

This leads to two recommendations for the new federal government: 

• It should reform § 16 Bundesstatistikgesetz and allow government agencies access to company data under restrictive conditions, while maintaining the confidentiality of the information to protect sensitive business secrets. 
• Furthermore, a small team should be created by the government within a ministry or a public authority to analyze critical supply chain risks. This team should also conduct the confidential exchanges with companies. The goal is to be able to estimate the potential economic damage that would be caused by a lack of critical products. As it only focuses on a limited number of potentially critical import dependencies, this is a very unbureaucratic approach. Unlike the proposal by the Scientific Advisory Board at the Federal Ministry for Economic Affairs and Climate Action (Wissenschaftliche Beirat beim Bundesministerium für Wirtschaft und Klimaschutz) to create a European Supply Security Office (ESSO), this would not create new government structures and new reporting obligations for companies. In setting up such an analytics team, Germany can learn from the United Kingdom, which created a team for supply chain analyses several years ago.