Successfully investing in China

After growing by 5.2 percent in 2023 and 5 percent in 2024, the economy stabilized at around 5 percent in early 2025. This is also China's target for the whole of 2025. However, ongoing US punitive tariffs continue to weigh on the economy, despite their temporary suspension, although exports have risen unexpectedly since the beginning of the year.  Exports to the US have successfully been diverted to other markets. In the domestic market, Beijing is responding with investments in high technology and infrastructure, while targeted tax breaks are intended to boost domestic demand.

However, structural problems remain: the real estate crisis continues (total nationwide investment in real estate development for 2024 and investment in residential construction fell significantly in 2024 compared to the previous year), and youth unemployment (officially down slightly to 15.8 percent in April) is dampening purchasing power. German-Chinese trade is recovering slightly (+2.1 percent in 2024) but remains well below pre-COVID levels. German companies are benefiting in niches such as individual chemical products and special-purpose machinery, but are suffering, for example, from China's electric car boom, which is displacing traditional OEMs (Original Equipment Manufacturer) and suppliers.

China is aiming for 5 percent growth in 2025 (IMF: 4.3 percent), but the outlook depends on four factors: (1) US tariff policy, which would further curb exports if escalated, (2) reforms in the real estate sector and (3) strengthening domestic consumption, and (4) global demand, which could benefit from interest rate cuts in the West.

Despite the challenges, China remains a key market – especially in future-oriented sectors such as green technologies. German companies should focus on localization, diversification and political risk management in order to take advantage of the opportunities and at the same time cushion the volatile framework conditions.

Despite some challenges, the investment climate in China continues to offer German companies attractive opportunities. Although regulatory hurdles, geopolitical tensions and the protection of intellectual property make market access more difficult, the huge domestic market with 1.4 billion consumers and China's leading position in many future technologies continue to make the country attractive.

The following key areas are particularly promising: Firstly, the healthcare sector, where the rapidly ageing population ("silver society") is creating huge demand for care facilities, medical technology and telemedicine solutions. German companies can score points here with high-quality products. Secondly, green technologies, against the backdrop of China's ambitious CO2 reduction and neutrality targets (2030-2060). Furthermore, the booming electric mobility sector continues to offer high potential for German suppliers. Thirdly, digitalization, where smart cities, AI and IoT offer great opportunities for growth, especially for data protection-compliant European solutions. Fourthly, mechanical engineering also offers opportunities, albeit now more in the field of industrial robots and special-purpose machines.

To be successful, German companies should focus on forming strategic partnerships, take advantage of local support programes (including those in Western China) and diversify into other Asian markets while maintaining their commitments in China. It is also important to adapt to local conditions and implement comprehensive risk management strategies. Despite the challenges, China remains a market with unique opportunities, particularly in promising areas such as green technologies, healthcare and digitalization. The key to success lies in striking the right balance between risk awareness and exploiting enormous potential, perhaps in collaboration with a Chinese partner.

As of 2025, German companies in China are facing a complex environment characterized by both internal reforms and external tensions. The ongoing trade conflicts, in particular the tariff dispute with the US, have a direct impact on business decisions. 

Legally, companies find themselves in a difficult position: On the one hand, they must comply with stricter requirements, such as those set out in the revised Chinese Company Law (2024) and the anticipated Environmental Code (2025). However, European regulations such as the German Supply Chain Due Diligence Act (LkSG) still apply, despite the fact that the new German government plans to abolish it. According to the omnibus draft, the EU Supply Chain Act (CSDDD) will be implemented at a later date and will affect significantly fewer companies. While the Chinese government relaxed some data protection regulations regarding cross-border data transfers in 2024, the legal requirements for foreign companies remain highly complex.

The skilled labor situation is particularly critical: China's attractiveness as a place to work for international experts has not fully recovered since the pandemic. Despite visa policy easing – such as extended visa-free stays for German business travelers – challenges such as the high cost of living in major cities and political uncertainties remain. At the same time, China's demographic change is intensifying competition for qualified local workers.

In contrast, the general conditions for key industries are developing positively: In the green tech sector, German companies are benefiting from China's massive investment in sustainability. The government is specifically promoting cooperation in areas such as e-mobility and renewable energies. Digitalization also offers opportunities for technology-oriented companies despite data protection challenges.

From tax perspective, China has accelerated the pace of tax legislation in recent years with the legislative process for key taxes such as the Value-added Tax Law (in effect January 1, 2026) and Consumption Tax Law (in effect 1 July 2025), which marks the entry of tax legalization into a new phase. The principle of taxation by law requires enterprises to comply more strictly with the laws enacted by the National People's Congress rather than the administrative regulations or local regulation of the past, thereby imposing higher requirements on enterprises' tax compliance.

From domestic level, the “Golden Tax (phase IV)” system employed by tax authorities can perform real-time cross-checking of a company’s financial information, cash flows, invoice data, and information exchanged from other authorities (like export declaration data). It also performs horizontal and vertical comparison and analysis of various financial data indicators. Any irregularities may trigger automatic alerts. Therefore, in today's complex and stringent tax regulatory environment, the Chinese tax authorities are increasingly enhancing their audit efforts and technological capabilities. This means that tax issues once overlooked due to lack of data transparency are now more likely than ever to be swiftly detected and audited. If tax compliance is neglected, enterprises may face tax risks and penalties.

Furthermore, during the globalization process, German companies are also facing complex cross-board tax issues arise in the various areas such as transfer pricing, permanent establishment, restructuring etc. and the intricate nature of tax regulations leading to numerous tax pitfalls.

The reformed Company Law has brought significant changes for German companies in China. The changes affect several key areas:

The law has introduced a five-year deadline for the payment of share capital – a significant tightening of the previous flexible regulations. There are serious consequences for non-compliance: defaulting shareholders lose their shareholder rights and other shareholders in joint ventures are jointly and severally liable. Another new feature is that creditors can demand early payment. The new regulation is particularly important with regard to existing investment agreements, in some of which very high capital commitments have been made, as the payment periods could be agreed for any length of time.

For the first time, the law explicitly regulates the duties of loyalty and care of board members and managing directors. They must now act in a similar way to German law:

Violations may result in personal liability risks and recourse claims.

Smaller companies in particular have benefited from more flexible corporate structures. For example, companies can dispense with a supervisory board. A new audit committee can take on supervisory board tasks. The role of the Legal Representative has also been made more flexible – any operationally active member of the Executive Board can take on this function.

However, the obligation for companies with more than 300 employees to have at least one employee representative on the management board (unless there is a supervisory board with employee participation) is causing uncertainty.

The right of shareholders to information has been strengthened – they can now also view documents from wholly owned subsidiaries of a Chinese company.

Overall, the new law has significantly tightened compliance requirements, in particular through:

At the same time, it offers more flexibility in the company organization. German companies should urgently review and adapt their articles of association and compliance structures. Particular attention should be paid to the new management duties and liability risks that are now explicitly enshrined in the law.

China has proven to be a robust economic power in 2023/24 despite global adversity, with growth of 5.2 percent (2023) and around 4.8 percent (2024). The economy is expected to stabilize in the coming years – although this development will largely depend on the outcome of the ongoing trade conflict and tariff dispute with the US. The recent suspension of reciprocal tariff increases must prove to be a serious step towards easing tensions on both sides and not just a tactical pause. If this succeeds and global demand, supply chains and domestic demand also stabilize, China could once again become an important growth driver for the global economy, which would also benefit German companies on the ground.

In the long term, China is committed to achieving sustainable growth, and green technologies will play a pivotal role in this endeavour. It is already a leader in renewable energies, e-mobility and battery technology. At the same time, it is driving innovation in AI, robotics and digitalization. These priorities present German companies with opportunities for cooperation and technology transfer, particularly in sustainable solutions and the circular economy, both of which are promoted by the Chinese government through subsidies. An environmental code containing over 1,000 articles is expected to be passed in 2025.

Nevertheless, China continues to face structural challenges, including an ageing population, a focus on academic education leading to a shortage of skilled workers, social inequality requiring reforms, and a need for further consolidation in the real estate sector. Added to this are stricter compliance rules, such as the reformed company law due to come into effect in 2024, which will offer greater legal certainty but also place higher demands on foreign investors.

For German companies, China therefore remains a market with great potential, but also complex framework conditions. In addition to bold investment decisions, success requires above all local expertise, reliable partnerships and the ability to adapt to regulatory changes. There are particularly attractive opportunities in future-oriented sectors such as green tech, digitalization and high technology – for companies that are prepared to take a long-term, strategic approach. Despite all the challenges, China will therefore remain one of the most important sales and investment markets for the German economy in 2025 and thereafter.