China's Currency Undervaluation Costs Germany

Germany's economy is projected to lose billions in growth due to the Chinese yuan's artificially low valuation. A recent study by the German Economic Institute (IW), commissioned by the Federal Foreign Office, suggests Germany's price-adjusted gross domestic product (GDP) could be up to 0.3% higher by 2028.

This potential increase is estimated to amount to around €43 billion between 2026 and 2028. The IW experts calculated this based on a hypothetical 40% revaluation of the yuan, which they consider a fair market valuation. Beijing maintains a state-controlled currency management system, making Chinese exports cheaper and imports more expensive.

Consequently, German exports to China have seen a significant value decrease, while imports of Chinese goods have surged, contributing to a trade deficit with China that reached approximately €90 billion in 2025. The study also suggests that China itself would benefit from a fairly valued yuan, improving its economic balance.

While China's GDP might initially decrease due to reduced exports, the simulation predicts a rapid recovery driven by increased domestic demand. As exports become less attractive, more goods will remain on the domestic market, potentially lowering prices and stimulating local consumption. This rise in domestic demand could largely offset the reduced export surplus within a few years, with China's economy nearly reaching its initial scenario level by 2028.