It was a blink of an eye when I read this on Monday. Four hundred thousand.
That’s how many jobs German industry has lost between 2019 and 2025, purely as a result of Chinese trade policy. At least that is what the Institut der deutschen Wirtschaft (IW), a research institute affiliated with German employers, claims. German companies and politicians are increasingly sounding the alarm: Germany, until recently the economic engine of Europe, is in danger of losing large parts of its industry (think of cars, machines, chemicals) due to competition from export juggernaut China.
You could accuse the Germans of some hypocrisy: until recently, fast-growing China was mainly a lucrative export market for them. Companies such as Volkswagen and Siemens have earned many billions in recent decades. But since 2021, German exports to China have fallen further every year (from 103 billion euros to 81 billion in 2025). The Chinese are making more and more (high-quality) products themselves.
Chinese competition has long been seen as unfair – not only in Germany, or in Europe, but also elsewhere in the world. When I visited the World Trade Organization (WTO) in Geneva in 2018, conversations with diplomats were constantly about China’s assertive trade policy. The country extensively subsidizes its own export industry and is increasingly shielding its own market from foreign competition, it was said. Eight years have passed and China’s trade surplus with the EU has roughly doubled, to 360 billion euros in 2025.
This Thursday and Friday, EU leaders in Brussels will discuss the broader use of import duties against China (on top of recent duties on electric cars, among others). During a summit of G7 countries in Évian, France earlier this week, China was also discussed, although coded language was used: “global imbalances” (“global imbalances”). China’s growth model is widely seen as “imbalanced” because domestic consumption is very weak (even decreasesas it turned out this week). Almost all economic growth must come from exports.
Where exactly are the ‘unfair’ aspects of Chinese trade policy? In this newsletter we talk about the latest data on Chinese state subsidies, but especially about a less discussed aspect: the undervaluation of the Chinese currency, the renminbi.
Europe itself is anything but averse to subsidizing its own industry. Consider the state support given to aircraft manufacturer Airbus in recent decades, or more recently and closer to home, Tata Steel. Industrial policy has certainly been on the rise in Europe in recent years, as the call for more self-sufficiency is growing. But China’s level is not being achieved in Europe.
From data The International Monetary Fund report for the period 2009-2022 shows that China spent 4.5 percent of its GDP on state aid for industry. The average in EU countries was 2.4 percent. More recent dates of the OECD industrial country club indicate a larger gap, at least between China and the OECD countries (Europe, but also the US and Japan, among others). Chinese companies received on average three to eight times more subsidies than competitors within the OECD between 2005 and 2024. Where Chinese companies improved their market share, this was 60 percent of the time thanks to state subsidies (direct subsidies, tax breaks and subsidized loans by state-owned banks), according to the OECD.
A cheap renminbi
Recently, attention has also been increasing on that other “imbalance”: the undervalued Chinese currency, the renminbi. The rate of the renminbi is kept artificially low by the Chinese government. This makes Chinese products cheap for foreign buyers (you need few euros to buy them) – and therefore attractive. In fact, this undervaluation is “an implicit subsidy for all Chinese goods at the same time,” writes the aforementioned German institute IW.
Against the currencies of China’s major trading partners, the renminbi is now 16 percent undervalued, according to one study of the International Monetary Fund. According to the American think tank Brookings, this is what matters more than 20 percent, according to yet other American economists even 30 percent.
Unlike, for example, the dollar and the euro, the renminbi cannot fluctuate freely in value. Its rate is set daily by the Chinese central bank, the People’s Bank, within a certain bandwidth. De Volksbank can do this, for example, by selling or buying renminbis against foreign currencies such as the dollar.
Due to its rapidly growing trade surplus alone, China should actually get a stronger (more expensive) currency. Foreign importers of Chinese goods ultimately need the renminbi, through their banks, to pay for their imports. Then the demand for the renminbi increases and it becomes more expensive under free market conditions. Another reason why the renminbi should become more expensive compared to other currencies is that China has hardly experienced inflation (monetary depreciation) in recent years, while other countries (including Europe) have. Only: the official exchange rate of the yuan barely reflects this. The exchange rate of the euro is even slightly higher compared to the renminbi than five years ago.
How is the renminbi viewed in China itself? It must be said: China has been slowly increasing its currency for about a year now (by 5 to 6 percent against the euro and dollar respectively). But whether this development will continue remains to be seen. Chinese authorities reject accusations of artificial undervaluation of the renminbi (also known as ‘currency manipulation’). China has “neither the need nor the intention” to achieve “competitive advantages in trade” through a weak currency, Volksbank Chairman Pan Gongsheng said in March.
That does not mean that the debate about the renminbi rate is not being conducted. Huang Qifan, former mayor of the greater Chongqing region, mentioned China’s trade surplus last month “excessive” and in this context advocated a “modest” and “gradual” increase in the renminbi exchange rate of 15 to 20 percent against the dollar over the next ten years. This would have the advantage of increasing the purchasing power of the Chinese themselves: import products would then become cheaper for them, according to Huang.
These are tentative signals that there may be talks with the Chinese about the renminbi.
Call to readers: how do you – as consumers or perhaps as entrepreneurs – experience the rise of Chinese products on the European market? Email me at [email protected]