The decline of German industry is not, at root, the fault of any single policy — the logic of industry itself has changed eras. Germany, which once extracted every advantage from the euro and the European Union, is now fighting a defensive war. Its "knights," Volkswagen, BMW, and Siemens among them, can barely defend themselves. Tens of thousands of "hidden champions" have lost the protective umbrella of the big industrial groups and are being squeezed twice over — by industrial policy and by economic reality. The politicians do not understand industry; the small factories cannot survive; and Taicang, a small city in China, has become German industry's other home.
In the Euro Era, Germany Reaped Every Advantage
The episode opens with the European Union and the euro. Professor Wang's verdict is blunt: in both the founding of the euro and the building of the EU, the Germans extracted every advantage — they simply refuse to admit it. They pocket the gains and still slam the table in complaint.
Germany is a profoundly externally oriented economy. Once the EU was in place, it used the strength of its industrial goods to "plunder" the rest of Europe — especially Eastern Europe — in a highly systematic fashion. First, pressure is applied through the media, NGOs, and environmental groups: your accession standards are inadequate, you are not green enough, you once belonged to the Soviet sphere — you cannot join the EU. Next, personnel are dispatched to remodel you from the top down. Then Deutsche Bank steps in with capital, acquiring you and folding you into the German industrial system. The textbook case is Škoda, in the Czech Republic.
① Pressure through media, NGOs, and environmental groups → ② a systematic top-down remodeling by dispatched personnel → ③ capital injection and acquisition by Deutsche Bank, integrating the target into the German industrial system (textbook case: Škoda, Czech Republic).
A strong euro was, for Germany, very nearly a pure benefit. Buyers had to purchase its high-end industrial goods whether they liked it or not, while Germany could buy from the rest of the world cheaply. The losers were mid- to low-end economies such as France and Italy, which still had to compete on price. The outcome: Germany ran persistent external surpluses and budgetary black ink, while other countries ran persistent deficits.
The turning point arrived quickly. In the first quarter of this year, Germany's share of global GDP fell from ten percent to five, and its trade with China swung from a surplus of 5.4 trillion to a deficit of 7.5 trillion. Now the Germans can only keep buying — Chinese goods have grown more expensive, but buy them they must, because buying from anywhere else costs even more.
The Knights Are Still There — but They Are Fighting a Defensive War
In Professor Wang's metaphor, German industry is a fortress, and Volkswagen, BMW, Porsche, BASF, Bayer, Siemens, and Thyssen are the knights within its walls. In outward export competition they could indeed fight. But what Germany is fighting today is a defensive war — and individual valor is of no use.
More troubling still, German politicians understand almost nothing about industry. Speak to Friedrich Merz or Ursula von der Leyen about cars and they follow; mention batteries and they may not; raise new energy and they are more lost still. An industrial policy that fuses the three simply does not exist in their world. If this is the state of the automobile industry — Germany's proudest crown — the rest can be imagined.
The Hidden Champions: Tens of Thousands of Small, Fine Firms That Lost Their Umbrella
In the defensive system of German industry, the element most often invoked by the media is the "hidden champion" — tens of thousands of small firms, scattered across Germany and indeed all of Europe, each commanding a technological moat in some subsystem. They are the absolute backbone of employment in German manufacturing.
Their weaknesses are just as plain: small from birth, family-run, fragile under shock, weak in research succession, and expensive. Each, moreover, commands only a single subsystem, with no complete supporting ecosystem around it. The moment it loses cost-performance, an emerging market sweeps it away. When China decides to produce a given category, a single roll-on/roll-off cargo ship can deliver the entire production template to its door. Germany simply cannot do this.
The Crux of the Disagreement: Are Small Firms Inefficient, or Did the Big Ones Collapse First?
Here the host — Shuangwei Huixing, "Double-Tailed Comet" — and Professor Wang have a disagreement worth recording.
Professor Wang's view is that the low efficiency and high costs of Germany's small and medium enterprises are the chief cause of their collapse. The host disagrees: German SMEs are not inefficient — the real problem is their weak capacity to absorb risk and their faltering research pipeline. Yet small firms in every country operate as family workshops, and all of them are weak against risk. Why, then, do China and the United States fare better than Germany?
The host's answer is the "protective umbrella." The survival logic of a small firm is to bind itself tightly to a single large company: the big firm supplies steady orders, occasionally funds an upgrade, and may even tolerate the small firm earning nothing for a decade. Self-interest is part of this, but so is a sense of national commitment — a large factory willing to share margins with a smaller neighbor in the same city or province keeps that firm alive, and in return secures stable, high-quality subsystems that let it assemble complete machines and earn the real money.
Germany's problem is that the competitiveness of its large firms has been destroyed under years of poor policy. The big firms cannot rise — they can only move abroad — and the protective umbrella is gone. Without it, small firms have no orders, no means to invest in research, no margins, and no basis for any long-term commitment.
Professor Wang holds that the low efficiency and high costs of SMEs are the primary cause; the host holds that efficiency is not the issue — the disappearance of the big-firm "umbrella" is the root. Both agree that weak risk absorption and a faltering research pipeline are the common ailments of small firms; they disagree on why Germany fares worse than other industrial powers.
The Double Squeeze and Taicang: Staying Alive Somewhere Else
Germany's squeeze on its large firms is already severe; its squeeze on small ones is staggering — small firms are even required to produce at a loss. How is anyone meant to survive?
The only outcome is something like Taicang: a small city in Jiangsu Province, population 800,000, that has gathered more than 560 German enterprises, even building a German-style street, and is known as the "hometown of German companies." German industry is not vanishing — it is simply staying alive somewhere else. Under the twin pressures of industrial policy and economic reality, that is the inevitable destination.
Germany's industrial decline is not a story of who did something wrong. It is the systematic exit of an old order once the logic of industry changed generations. The valor of the knights and the moats of the hidden champions have all become a game from a previous version — outmatched by a new logic in which efficiency overwhelms all, systems reinforce themselves, and the old eliminates itself.