Germany-China Trade: Potential and Implications

Germany and China have substantially enhanced their economic ties over the last decade. Germany is China's biggest trading partners in EU while China is Germany's second largest trading partner outside Europe in term of total turnover. This study attempts to assess trade potential between Germany and China using an augmented gravity model. It detects a gap between the actual Germany–China bilateral trade and the level that is predicted by their export potentials. It is reasonable to expect the existence of de facto trade preferential between the two countries. Because of the high complementarity of their economic structures, Germany and China will benefit from closer economic ties and increase their competition in global market. Moreover, the enhanced bilateral relationship tends to help both of them exploit the growing economic power to increase their individual influence in regional governance.