Deindustrialization and the convenient scapegoat: It's not the energy transition that's to blame, but…

Alarming figures: Why we have only ourselves to blame for deindustrialization

Restoration instead of progress: The thinking of yesterday's generation

The German economy is shrinking, factories are relocating production, and fears of creeping deindustrialization are rampant. In the heated public debate, the culprit is usually quickly identified: the energy transition, high electricity prices, and excessive bureaucracy. But this convenient narrative is not only overly simplistic—it's fatal. While Germany argues about national competitive advantages, a historic structural break is taking place on the global market. Driven by radical, often misunderstood Chinese economic concepts like "Neijuan" and "Leapfrogging," the former export nation is losing significant ground in key technologies. The true reason for Germany's decline lies not in the abandonment of coal and nuclear power, but in a dramatic innovation crisis, a lack of commercialization, and a stubborn adherence to yesterday's management formulas. This is a ruthless economic analysis of who has truly failed—and what must happen now to prevent the slide into irrelevance.

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“Neijuan” & “Leapfrogging”: The ruthless China strategy that attacks our comfort

It's a familiar pattern in times of crisis: people look for a simple culprit, a catchy narrative that reduces complex causes to a single common denominator. In Germany, the energy transition has taken on this role. Anyone following the headlines might believe that the country only fell into its economic turmoil because of the shift away from nuclear and coal-fired power. This view is not only intellectually dishonest—it's dangerous because it obscures the real causes of the decline and prevents solutions that could actually help.

In fact, Germany's industrial production has declined every year since 2022: by 0.2 percent in 2022, 1.2 percent in 2023, 4.8 percent in 2024, and another 1.6 percent in 2025 – the fourth consecutive year of decline. These figures are alarming. But an honest economic analysis demands that they be placed in a global context that extends far beyond the vagaries of German energy policy. For parallel to these declines, a world-historical structural shift is taking place, one that has fundamentally altered the coordinates of global competition – and to which Germany, Japan, South Korea, and even the USA have yet to find a convincing answer.

Those advocating for a return to traditional economic principles – economists, lobbyists, and top managers of the old school – are resorting to familiar remedies: cheaper energy, less bureaucracy, lower taxes. These aren't inherently wrong measures, but they address symptoms, not the root cause. The German Institute for Economic Research (DIW Berlin) has aptly summarized the situation: the common approaches – tax breaks, general investment subsidies, and reductions in electricity prices – can improve production conditions, but they miss the real problem of the technological investment trap. Anyone viewing the world through the lens of 2005 will fail to make accurate diagnoses in 2026.

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China's recipe for the world market

To understand what really challenges Germany, one must take seriously two Chinese concepts that are often underestimated or misinterpreted in Western economic discourse: Neijuan and Leapfrogging.

Neijuan, originally a term from agricultural sociology, now describes the destructive form of Chinese domestic competition in which companies systematically sell below cost, defend market share at any price, and thereby drive the entire sector into a cutthroat battle with no productive outcome. The four largest Chinese module manufacturers – Longi, Jinko Solar, Trina Solar, and JA Solar – reported combined net losses of approximately US$1.54 billion in the first half of 2025 alone, representing a 150 percent increase compared to the previous year. These companies are ruining each other – and yet this seemingly irrational dynamic has a strategic effect that the West has long ignored: it is driving production costs and market prices to rock bottom. Those who cannot or will not participate in this price collapse lose the market.

The leapfrogging principle impressively complements this pattern. China didn't try to beat the old technology leaders on their own turf. Instead, it skipped entire stages of development—the fixed-line telephone network, the semi-automated warehouse, the second-generation internal combustion engine car. Driven by the state-run "Made in China 2025" strategy, the country secured a dominant global market position in record time: over 90 percent market share in polysilicon for solar applications, 97 percent in wafers, 85 percent in solar cells, and 75 percent in modules. In 2025, China installed a total capacity of 769.7 gigawatt-hours of electric vehicle batteries—an increase of 40.4 percent compared to the previous year. This isn't a gradual industrial catch-up process; it's a tectonic shift.

This rise would not have been possible at this speed without a crucial external impetus: Apple. When the Cupertino-based company shifted its manufacturing chain to China, it transferred not only production volume, but above all manufacturing know-how, quality standards, and supply chain discipline to an extent that trained Chinese industry in just a few years what other countries had not achieved in decades. China's technological power is thus also an unintended consequence of Western outsourcing strategies—a bitter, but instructive, chapter of economic self-destruction.

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Solar panels, electric cars, battery storage: The new industrial trinity

China's industrial transformation is manifest today in a coherent cluster of three key technologies that reinforce each other and create a unique competitive advantage: photovoltaics, electromobility and battery storage.

In photovoltaics, China's dominance is overwhelming. In Germany, 87 percent of all imported PV modules were sourced from China in 2022. Europe has effectively ceased to be a significant producer in this sector. China's market share gains in electromobility were even faster: from 7 percent in 2020 to over 25 percent of global new registrations in 2023. Lithium iron phosphate (LFP) batteries became the standard in the Chinese domestic market – more robust, more cost-effective, and thermally more stable. By 2025, LFP technology accounted for 81.2 percent of the entire Chinese EV battery market, representing growth of almost 53 percent compared to the previous year. BYD, the Chinese company that was ridiculed as a curiosity in Europe just a few years ago, is now the world's largest manufacturer of electric vehicles by unit sales.

In the first half of 2025, China surpassed the 100-gigawatt mark for stationary battery storage capacity for the first time – an increase of 110 percent compared to the previous year. This storage market is not only significant from an energy policy perspective, but also forms the infrastructure for the reliable integration of renewable energies into the grid – precisely what Germany is still trying to build. Within a decade, China has thus established a complete value chain, ranging from raw material extraction and cell manufacturing to system integration. Catching up with this lead requires not less energy transition, but more strategic determination.

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The leap to the next frontier: Humanoid robots as China's new industrial cluster

What has been described so far would in itself be an extraordinary economic achievement. But China is not content with merely dominating current industries – the country is simultaneously building an industrial cluster that could redefine future production paradigms: humanoid robots.

The Chinese Ministry of Industry and Information Technology recognized the potential of this field early on, aiming for mass production of humanoid robots by 2025. This plan is now taking concrete form: In April 2026, China's first humanoid robot production line, with an annual capacity of over 10,000 units (producing one robot every 30 minutes), was commissioned in Shenzhen. Another facility, with a maximum design capacity of up to 50,000 robots annually, was completed in Foshan, Guangdong Province, at the end of March 2026. By 2025, China alone boasted over 140 humanoid robot manufacturers, and the sector attracted over 40 billion renminbi in investment capital, resulting in the creation of six new unicorns.

China already produces more than half of the world's humanoid robots and, according to forecasts, is expected to reach a global market share of almost 45 percent in the field of embodied intelligence by 2030. The comparison with the rise of electric vehicles is not an exaggeration—it is deliberate. The pattern repeats itself: state-funded industrial clusters, massive investments, rapid economies of scale, global price leadership. What began with solar panels continues with batteries and electric cars and is now culminating in robotics and artificial intelligence. Germany and Europe are largely watching this process unfold.

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When all the old rules no longer apply: The paradox of market share losses

There is a fundamental economic logic that is too rarely made explicit in the public discourse about Germany's crisis: Losing market share is not, in itself, evidence of the failure of those who lose it – it is primarily an expression of the recovery efforts of those who gain it. The question is not whether this process is taking place, but how the previous market leaders are reacting to it.

Japan is the most instructive historical example of this dilemma. The country, considered an unstoppable economic powerhouse in the 1980s, gradually lost its dominance in key industries such as consumer electronics and automobiles—less through its own mistakes than through the catch-up efforts of South Korea, Taiwan, and finally China. The Japanese economy grew by a mere 0.2 percent in 2024, and by the end of 2025, GDP had virtually stagnated in the fourth quarter, with growth of just 0.1 percent. Full-year growth in 2025 reached 1.1 percent—solid enough for an aging economy, but far from dynamic. The underlying reason is structural: Japan failed to make the leap into next-generation industries in time.

South Korea has drawn its conclusions from this – or at least is trying to. Samsung announced investments of $310 billion over the next five years in semiconductors, AI infrastructure, and high-tech manufacturing. The country is redefining itself, not as a manufacturer of mass-produced goods, but as a supplier of critical technologies for the AI ​​era. Samsung's operating profit increased eightfold in the first quarter of 2026 compared to the previous year – driven by explosive demand for memory chips for AI data centers. South Korea demonstrates that those who anticipate the next technological trajectory can succeed despite Chinese competitive pressure.

The US, however, has chosen a different path: protectionism. After taking office in January 2025, President Donald Trump imposed extensive tariffs on China, the EU, and dozens of other countries. The result is sobering. The US trade deficit for goods and services amounted to approximately 901 billion US dollars in 2025 – only about two billion dollars less than in 2024. The deficit in merchandise trade actually increased. Protectionism safeguards the status quo but does not create future industries. It is economic policy as a nostalgia project.

Innovation in decline: Germany's self-inflicted weakness

The most critical finding for Germany is not the energy transition, but the decline in its innovative capacity. In the BDI's 2025 Innovation Indicator, Germany ranks only 12th out of 35 economies. Particularly painful is the diagnosis formulated by the study itself: Germany is among the world leaders in knowledge generation, but it lags considerably in the commercialization of this know-how – according to the BDI study, efficiency in its economic application is a mere 61 percent. Plenty of research, little innovation. Plenty of fundamental knowledge, little marketable product.

A study commissioned by the Bertelsmann Foundation, surveying over 1,100 companies, reached an alarming conclusion in 2026: only 13 percent of German firms were among the most innovative – compared to around a quarter in 2019. The proportion of companies with weak innovation had risen to almost 40 percent during the same period. Core industrial sectors are losing their innovative edge, while knowledge-intensive services and the IT sector are increasingly taking on the role of technological leaders. This is not a temporary dip – it is a structural shift in the innovation profile of the German economy.

The CEO of the Association of German Chambers of Industry and Commerce (DIHK) reports that the proportion of industrial companies considering production cutbacks or relocations has risen from 21 percent in 2022 to 37 percent in 2024 – and even to 45 percent for energy-intensive companies. More than a third of companies are postponing investments in core production areas, and around a fifth are reducing spending on research and development. This is the real vicious cycle: Under cost pressure, R&D spending decreases, which in turn reduces innovation, thus reducing competitiveness, and consequently increasing cost pressure.

Added to this is a generational problem that is rarely openly discussed: Many of the leading figures in German boardrooms and association presidencies were socialized during the economic boom of the 1990s and 2000s, when German cars, German machinery, and German chemicals almost automatically dominated global markets. The mental models that emerged in this era—reliability beats speed, quality beats price, tried and tested beats new—are no longer strengths in a world that behaves fundamentally differently. They are burdens hanging from the ankle.

Those who grow catch up – and what that means for Germany

A sober look at the global growth map shows that the period of weakness of the established industrialized nations is not a coincidence, but a mathematical necessity of convergence: economies that start from a low initial level grow faster – not because they are better, but because they are catching up.

India is the most prominent current example. India's gross domestic product (GDP) grew by 7.6 percent in real terms in the 2025/2026 fiscal year, and experts are forecasting 6.6 percent growth for the 2026/2027 fiscal year. With a GDP of US$4.19 trillion, India is expected to overtake Japan as the world's fourth-largest economy in 2025 and catch up with Germany in 2028. This shift is not a tragedy—it is the global norm, but one that is now becoming tangible. In Latin America, Argentina, with a growth forecast of 5.7 percent for 2025, and other emerging economies demonstrate that catch-up processes are also taking place at the other end of the world map.

The resulting paradox is hard for established industrialized nations to swallow: The markets that Germany is pinning its hopes on as future growth regions – Latin America, Southeast Asia, Africa – have long since been tapped into by China. With low prices, advanced battery technology, and software-centric vehicle concepts, Chinese manufacturers are gaining market share precisely in those dynamic regions that Germany sees as a lifeline. The diversification of supply chains, which Berlin has formulated as a long-term strategic objective, has already been fully implemented by Beijing – as an aggressor, not a defender.

For Germany, this has a clear consequence: Past geographic expansion strategies – opening up new markets with proven products – no longer work when a competitor is already waiting in those markets with prices and products that Western suppliers cannot structurally undercut. The engine of growth can no longer be fueled by market expansion with existing products. It must be ignited by technological redefinition.

The technological investment trap and the way out

The German Institute for Economic Research (DIW Berlin) has precisely described the core problem: Germany is caught in a technological investment trap. The necessary transformation investments in AI, quantum computing, robotics, and green hydrogen technology exceed the capabilities of individual companies and national policies. A pan-European, competitive, and strategic industrial policy is the only lever powerful enough to overcome this challenge.

Mario Draghi's September 2024 report on European competitiveness formulated this diagnosis at the European level and identified six key challenges: lagging behind in key technologies, the lack of rapidly growing digital companies, one-sided dependencies, the loss of cheap energy and export opportunities, and climate change and demographic shifts. The recommended reform packages—a new European industrial strategy, investments in AI and quantum computing, and the completion of the single market for capital—represent nothing less than a complete redesign of the European economic architecture.

Germany certainly has strengths it can leverage. A Deloitte study confirms that Germany ranks among the five most innovative countries worldwide in terms of world-class patents and is a leader in Europe, particularly in technologies for connected mobility and energy efficiency. The high density of engineers, the research infrastructure, and the culture of technical excellence among small and medium-sized enterprises (SMEs) – these are not empty phrases, but real competitive advantages that, however, need to be channeled in a new way. The Important Projects of Common European Interest (IPCEI) program in the fields of microelectronics, battery cell production, and hydrogen technology is a sound approach – but it needs a significant increase in funding, a broader scope, and more efficient implementation.

What Germany currently lacks is not research excellence – that is already present. What is lacking is the willingness to embrace radical commercialization, to mobilize venture capital, and to tolerate failure in the innovation process. The proportion of risk-taking, disruptive innovators is declining; companies are increasingly focusing on the further development of existing products, services, and processes, while fundamental realignments are less frequently pursued. This is innovation policy as risk minimization – precisely the opposite of what global competition demands.

The generation that now has to decide

The historical irony of this situation is that it is precisely the younger generation that will bear the consequences of their predecessors' flawed thinking – and is simultaneously the only one with the potential to draw the right conclusions. For them, recognizing these connections is not an academic exercise, but a matter of economic survival.

The lesson from China is not to copy the Chinese model. State-mandated industrialism, with its downsides—overproduction, debt accumulation, ecological devastation—is not an exportable success story. Rather, the lesson lies in the strategic clarity and willingness to invest with which China pursues long-term goals, while Europe remains bogged down in consultation processes and regulatory minutiae. The transition to renewable energies, the development of a competitive battery industry, the advancement of AI sovereignty—these are not luxuries for times of prosperity, but rather the fundamental prerequisites for future prosperity.

Global competition has awakened. It is no longer asleep. It is not waiting for Germany to end its debates. Anyone who opts for restoration in this environment is not choosing the security of the familiar – they are choosing guaranteed decline. This is not an opinion. These are the facts.

Konrad Wolfenstein

I would be happy to serve as your personal advisor.

Konrad Wolfenstein

Email: [email protected]

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