Summary of Key Points
This article discusses the competition and tensions between Chinese and Western manufacturing industries, particularly in the automotive sector. On one hand, European countries like Germany are under significant pressure due to the rapid rise of Chinese manufacturing. Local manufacturers, including so-called "hidden champions," are facing bankruptcy, increased unemployment, and even threats to their pension systems. On the other hand, while the Chinese automotive industry has a competitive edge globally, it also suffers from issues such as rapid product iteration and severe homogenization. Additionally, there are significant differences in development speed and policy environments regarding future technologies like autonomous driving, with Europe clearly falling behind. The overall pattern suggests a competitive situation where "China is too fast, and Europe is too slow," leading to ongoing tensions that are difficult to resolve.
1. Why Has Germany Suddenly Changed Its Attitude Towards Chinese Manufacturing?
Previously, Germany was relatively supportive of Chinese manufacturing. However, recently, Chancellor Merkel has publicly stated that Chinese subsidies and exchange rate policies give Chinese products a significant price advantage, suggesting a 25%-30% appreciation of the RMB. The change in attitude is due to the need to protect German companies. These high-quality, technology-driven manufacturers are being rapidly challenged by Chinese competitors, losing market share. For example, in 2026, Germany imported more "advanced capital goods" from China than it exported for the first time, a situation that was unthinkable before. German companies are either forced to reduce production and lay off employees or move their factories to China (with over 560 German firms already located there, including many hidden champions), leading to a decline in local manufacturing.
2. Are Germany's "Hidden Champions" Losing Out?
German "hidden champions" refer to small, specialized companies that are leaders in their respective fields globally. However, they are now facing tough times: the number of manufacturing bankruptcies has increased by more than 80% since 2021. In 2024, one out of every six bankrupt companies was an automotive parts supplier; in 2025, a German company went bankrupt every 20 minutes, reaching a new high in over a decade. The situation is so severe that the German economy is losing over 10,000 jobs each month, weakening its industrial base.
3. Is China's Automotive Industry Moving Too Quickly?
Despite selling well globally, the Chinese automotive industry has several internal problems:
- Many Brands with High Homogenization: There are more than 130 brands on the market, and most companies aim to be "large and comprehensive," which often leads to strategies that deviate from market needs.
- Rapid Product Iteration: Over 600 new cars were launched in the first half of 2026, with frequent model changes (daily or quarterly), many of which are superficial innovations.
- Declining Profit Margins: Industry profit margins dropped to 3.8% in the first half of 2026, down from 4.3% in 2024 and 4.1% in 2025.
- Weakening Value of Vehicles: The resale value of fuel-powered cars has decreased from 67.6% in 2022 to 52.7% in the first half of 2026, while that of electric vehicles has dropped from 54.7% to 45.2%. These rapid changes not only reduce industry profits but also impact the car rental market, which relies on the resale value of vehicles. If this trend continues in Europe, it could disrupt the local automotive industry.
4. Autonomous Driving: China Ahead, Europe Lagging
Europe is trying to catch up with autonomous driving technology but struggles due to strict regulations:
- Strict EU Regulations: The EU's R171-DCAS directive requires drivers to confirm every step of autonomous driving, limiting development. Even when the rules were relaxed, autonomous driving is still not allowed in urban areas. Tesla spent a year and a half testing and submitting thousands of documents to obtain permission for FSD (full autonomous driving) in the Netherlands; other countries are still hesitating.
- More Flexible Chinese Policies: Shenzhen's updated regulations in 2026 state that in L4 (highly autonomous) driving, the responsibility for accidents lies with the vehicle owner/manager, essentially giving a green light to autonomous driving. Major Chinese automakers focus on advanced driving features, while Europe is still at the stage of requiring driver confirmation, widening the gap between the two.
5. Germany's Pension Crisis
The difficulties in German manufacturing are affecting its pension system:
- Insufficient Pensions: Current pensions amount to 48% of pre-retirement wages, below the World Bank's recommended 55%. The average monthly pension is only 1099 euros (about 8,000 RMB), and the standard pension is 1692 euros.
- Financial Pressure: Pension expenditures account for 25% of Germany's budget, making it the largest single item of expenditure.
- Vicious Cycle of Reform: Efforts to close the pension gap include delaying retirement ages and increasing contribution rates, which burden companies and reduce their competitiveness, leading to more unemployment and bankruptcies, thus worsening the pension situation.
Conclusion
China is rapidly rising in the manufacturing industry, especially in automotive, thanks to its speed and diligence. Europe, on the other hand, is falling behind due to its slower pace and conservative approach (refusal to sacrifice current lifestyles and rigid regulations). The tensions between the two will continue, but it is unlikely that either side can change its path significantly. They will have to coexist and adapt as they move towards the next era.