Financial expert warns: German banks could get into trouble in the event of a trade conflict with China

Financial expert warns: German banks could get into trouble in the event of a trade conflict with China

According to a report by www.merkur.de, the Bundesbank warns the German economy about the risks arising from close trade relations with China. German banks in particular could get into trouble if trade relations with China suddenly had to be cut.

Banks have lent large amounts to sectors of the economy that rely on Chinese suppliers, according to an article in their monthly report. At the end of 2022, German banks' exposure to companies heavily invested in China amounted to almost 220 billion euros - around 7 percent of their risk-weighted assets. If trade relations with China deteriorate, the Bundesbank warns, this would ultimately increase the likelihood of loan defaults and impact the financial system.

Political tensions between China and Germany have increased, prompting the Bundesbank to emphasize that Germany needs to become more independent from China to strengthen the economy's resilience. A separate study by the German Chamber of Commerce in China showed that most German companies in China believe the Asian country's economy is declining and will take at least a year to recover.

These developments suggest that German financial institutions and companies may need to rethink their business strategies to reduce the risks arising from close trade ties with China. The shift towards greater independence from China could lead to companies and financial institutions in Germany opening up new partners and markets, which could lead to a more diversified and resilient economy and financial sector in the long term.