German Foreign Investment and the debate over Germany as a business location

The stock of German foreign direct investment abroad increased from approximately €832 billion in 2010 to €1.689 trillion in 2024, more than doubling over this period. The number of companies also rose by 35 percent to 44,740, while employment increased by 40 percent to 8.593 million and annual sales by 102 percent to approximately €4.2 trillion.

In aggregate, the EU27 accounted for the largest share of German foreign direct investment stocks, at approximately 38 percent in 2024. Looking at individual countries, the United States led in 2024 with a share of around 27 percent, equivalent to €460 billion. China ranked third, with a share of just under 7 percent, after Luxembourg at just under 9 percent. Between 2010 and 2024, the stock of German foreign direct investment in China grew by 281 percent, the strongest increase among the top 10 countries. Foreign investment in the United Kingdom grew the least, by only 5 percent.

Looking at the sectoral structure of German foreign direct investment abroad, manufacturing dominated in 2024, accounting for nearly 35 percent of all German foreign direct investment stocks abroad. This corresponded to €587 billion. Financial and insurance activities followed with 26 percent, and wholesale and retail trade and the repair of motor vehicles with 16 percent. Within manufacturing, the manufacture of motor vehicles and motor vehicle parts dominated, accounting for 24 percent of industrial investment, followed by the manufacture of chemicals and chemical products at 20 percent.

The regional distribution of German foreign direct investment stocks varies considerably by sector. The analysis considers the EU27 as an aggregate, the United States, China, and the rest of the world. In manufacturing, the EU27’s share declined to just under 32 percent in 2024, while the United States increased its share to 28.5 percent and China nearly doubled its share between 2010 and 2024 to 13.3 percent. In financial and insurance activities, the EU’s share increased almost sevenfold to 43 percent, while the U.S. share nearly halved. Unlike in manufacturing, China’s share remained relatively small, at less than 3 percent in 2024.

A more detailed examination of individual industrial sectors highlights the sharp increase in German foreign direct investment stocks in the manufacture of motor vehicles and motor vehicle parts in China. China accounted for approximately one-quarter of all German foreign direct investment stocks worldwide in this industrial sector in 2024. This share was nearly twice as high as the average for manufacturing and almost four times as high as China’s share of total German foreign direct investment stocks abroad. No other industrial sector recorded a share of German foreign investment in China that was even remotely as high. Another notable development was the strong increase in German foreign direct investment stocks in the manufacture of chemicals and chemical products in the United States. Between 2010 and 2024, the U.S. share increased by 20 percentage points to more than 46 percent of global stocks in this sector. Over the same period, the EU27’s share nearly halved to 16 percent.

Unlike in the EU27 and the United States, German foreign direct investment stocks in China are clearly concentrated in industry. In 2024, manufacturing accounted for nearly 71 percent of all German foreign direct investment stocks in China. Within manufacturing, the manufacture of motor vehicles and motor vehicle parts dominated, with a share of 46.2 percent.

An analysis of several different corporate surveys on the motivations of German companies investing abroad shows that the available evidence does not permit a consistent and clear-cut identification of these motives. For example, it remains unclear precisely what drives the cost savings German companies expect to achieve abroad—whether, for instance, they are based on lower labor costs or lower energy costs. This would be important information when considering possible location-related policy measures. Nevertheless, the general trend suggests that the relative importance of investment motives may have shifted somewhat in recent years. Cost considerations appear to have gained importance relative to market-seeking motives.

The steady increase in German companies’ foreign investment, combined with the growing importance of cost advantages abroad as a motivation, raises the question of what impact these developments have on Germany as a business location. A comparison of German exports and foreign direct investment stocks in the United States shows that both have increased in parallel. In China, by contrast, the growth of German exports has lagged significantly behind the growth of German foreign direct investment stocks there. Unlike in the case of the United States, there is therefore evidence that local production in China may be displacing German exports to China.

Regarding the relationship between German outward investment and domestic investment, survey results show that until a few years ago, German companies' foreign investment plans went hand in hand with above-average domestic investment intentions. Since then, however, this trend has reversed, and German outward investment now tends to come at the expense of domestic investment. Furthermore, a comparison of the development of German outward foreign direct investment stocks and gross fixed capital formation, used as a proxy for the stock of domestic investment, shows that German outward investment has grown considerably more dynamically than domestic investment.

The analysis also examined whether there are signs of negative consequences of Trump’s tariff policy in the form of increased German foreign direct investment in the United States. A comparison of investment transactions and survey results over time does not yet reveal any strong tendency among German companies to relocate to the United States. On the contrary, according to preliminary data, German foreign direct investment in the United States was approximately 80 percent lower in the first half of 2026 than in the first half of 2024, before Trump took office for his second term.

With regard to the business activities of German subsidiaries in China, the report argues that significant divergences have emerged between corporate interests and Germany’s interests as a business location. The main issue is the increasingly extensive relocation of business activities to China, driven in part by distortions of competition and linked in particular to a stronger tendency toward an “in China for the world” strategy. The continued strong transfer of technology is also potentially problematic from a macroeconomic perspective. The same applies to the consequences of heavy dependence on China among major companies, including potential bailout risks for taxpayers and restrictions on Germany’s sovereignty in shaping its China policy.

The study’s findings lead to important policy recommendations. Comprehensive reforms to reduce costs are needed to restore the competitiveness of Germany as a business location. The China-specific recommendations address, first, production relocations that have been amplified by market distortions. Such incentives to relocate should be reduced through compensatory tariffs on Chinese goods. In addition, the German government should take action against localization requirements and other barriers to market access in China and should continue to scale back existing incentives, such as investment guarantees. Second, policymakers need to make a credible no-bailout commitment in order to reduce potential risks to taxpayers arising from companies’ heavy dependence on China and to avoid creating misguided incentives. Where corporate interests and the interests of Germany as a business location diverge, policymakers must prioritize the interests of the domestic economy and take greater account than before of the challenges facing small and medium-sized companies.