Both Olaf Scholtz, German Chancellor, and Ursula von der Leyen, European Commission president, have issued warnings to EU businesses about the need to ‘derisk’ from their investment in China. They, amongst others, cite the growing geopolitical risks in the Taiwan Strait as a major future problem which could leave German companies with deep ties to China stranded, and Germany cut off from access to the raw materials their manufacturing industry needs.

German business, led by its car manufacturers, seemingly have done the opposite.

German direct investments in China stood at €7.3b for the first half of 2024, compared with €6.5bn for the whole of 2023. It continues to accelerate with €2.48bn in the first three months of 2024, rising to €4.8bn in the second quarter.

It’s comfortably the largest market for new car sales in the world. Data from Statistica shows China China registered 25.6m new cars in 2023. Well ahead of the US with 15.5m, the EU with 12.9m and India with 4.1m.

Based on the sheer size of the market China is an impossible market for any global car manufacturer to resist. Most will openly admit that unless they are in China, they are out of the global business. Moving away from it is not an option they will consider, as China will most likely shape the future of both car consumption and production for many years to come.

It is also a market which has become tougher for non-Chinese manufacturers who have worked on a joint venture basis and enjoyed healthy profits for decades. In mid-2023 Chinese-owned and Chinese-led car makers took the majority market share over foreign brands. In 2024 research from Dunne Insights shows they have sizeable 62% market share.

This rapid swing is thought to be the result of a combination of patriotic sentiment and technological change. Sentiment against US car brands, for example, is likely to strengthen with constant news of US sanctions and trade friction. US car brand sales have declined faster than German sales possibly as a result. What has accelerated the change is the rapid move to Electric Vehicles which surged in 2021, and now outsells combustion engine car sales. EVs in China tend to be Chinese branded, whilst non-Chinese manufacture remains predominantly focused on combustion engine cars. They are being left behind.

If this wasn’t enough, the Chinese government has provided subsidies to some of China’s EV key supply chain players, with battery manufacturer CATL at the top of the list.

America’s General Motors sold 4.1m units in China in 2017 and 1.8m in 2024. It announced it is pulling away from China this month. We can read that very simply as a defeat to domestic competition, not as a strategic de-risking of the business due to Taiwan concerns.

Fears of a Chinese EV invasion may be overblown. However, the geopolitical risks highlighted by Olaf Scholz and Ursula von der Leyen are unlikely to play a major part in decision making process for global car manufacturers for some time. They have more existential threats to address.