KfW Research: SMEs bemoan increasing competitive pressure from China

• Almost one in five SMEs face growing competition from the People’s Republic
• Manufacturers and retailers in particular are experiencing competition from low prices and rising quality
• More than 40 per cent of globally operating SMEs expect their competitive position to deteriorate

German SMEs are increasingly worried about their international competitiveness. A supplementary survey to the KfW SME Panel in September 2025 revealed that more than 40 per cent of German SMEs that compete globally expect their competitive position to worsen in the next three years – more than twice as many as two and a half years before. Only 23 per cent expect their competitive position to improve, down from 35 per cent in March 2023.

Businesses that have direct competitors in China or have particularly energy-intensive production processes are much more likely to take a pessimistic view of their future. But those that continuously conduct research and development, thereby actively participating in the competition for innovations, are significantly more likely to be optimistic about their future.

The supplementary survey has revealed that almost one in five (19 per cent) of the 3.9 million small and medium-sized enterprises in Germany currently face growing competitive pressure from Chinese rivals. These compete not just by offering low prices but also by providing products and services of increasingly better quality. Manufacturers are hit particularly hard by the competition from the Far East. In this sector, 28 per cent feel growing pressure from high-quality products from China and 34 per cent from low prices. Wholesalers and retailers feel the competition very clearly as well.

Overall, 13 per cent of SMEs reported that competition from China will be one of the key challenges for their business in the future – while this was stated by 29 per cent of manufacturing firms and 24 per cent of retail businesses. However, many SMEs also benefit from trade with China. Around 19 per cent of SMEs use Chinese imports to save costs or improve their own offerings.

Businesses that compete globally regard excessive bureaucracy in Germany as a particularly high risk for their future competitiveness. Sixty-five per cent of them see bureaucracy as a problem – another sharp rise from the 48 per cent in 2023. High taxes and levies are considered a major burden on competitiveness by 60 per cent of SMEs, up from 34 per cent in 2023. High energy costs were described as a risk by 41 per cent of internationally operating businesses, compared with 21 per cent in 2023. The scarcity of raw materials is also perceived as a burden, particularly in the manufacturing sector. Thirty-eight per cent of small and medium-sized industrial firms are concerned about this, up from 23 per cent in 2023.

“German SMEs are experiencing increasing pressure from Chinese competitors. In order to protect businesses from disadvantages in competition, appropriate trade and industrial policy responses must be found at EU level,”

said Dr Dirk Schumacher, Chief Economist of KfW.

“At least as important is to strengthen the competitiveness of German businesses. Dismantling bureaucracy, introducing an internationally competitive tax system and paying lower energy prices are high priorities for businesses. Research and development should be supported even more strongly by businesses and policymakers because innovative enterprises have better chances of holding their own in competition.”

The study can be found at Focus on Economics | KfW

^{KfW supports SMEs with a number of promotional programmes on behalf of the Federal Government. More information is available at We are strengthening the SME sector (German page)}