Germany to Boost Raw-Materials Fund to Reduce Reliance on China

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(Bloomberg) — Germany plans to increase the firepower of its national raw-materials fund by as much as half to €1.5 billion ($1.7 billion) as it seeks to reduce dependence on critical supplies from countries such as China and shore up supply chains. Officials are also considering expanding the vehicle into a sovereign wealth fund from 2028 onward.

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Chancellor Friedrich Merz’s government agreed after months of coalition wrangling to raise the fund’s cash resources by €300 million to €500 million from 2027, according to people familiar with the matter. The vehicle takes stakes in, and issues states guarantees for, raw-materials projects around the world.

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Members of Merz’s conservatives and Vice Chancellor Lars Klingbeil’s Social Democrats are also considering expanding the fund beyond commodities into other sectors deemed critical to national security, said the people, who spoke on the condition of anonymity.

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Spokespeople from the finance and economy ministries said in statements to Bloomberg that the government intended to increase the capacity of the fund, without elaborating further. 

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Europe’s largest economy is moving to diversify access to strategic resources as concerns mount that China — which holds a near-monopoly in processing many critical materials — is increasingly willing to weaponize that dominance for geopolitical leverage.

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The agreement followed a dispute between the finance and economy ministries over how much risk the state should assume in projects that often carry high default probabilities. Officials ultimately agreed to increase the fund’s capital base to accelerate the build-out of a diversified portfolio, allowing risks to be spread across multiple investments and enabling the issuance of more guarantees, according to government officials.

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Coalition officials also discussed broadening the fund, which is part of the so-called Germany Fund, to include areas such as domestic security, defense and infrastructure projects including power grids from 2028 onward — or even turning it into a sovereign wealth fund. No agreement has yet been reached and negotiations are continuing, the people said.

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The raw-materials fund was launched under the previous government and has so far invested in only two projects. One is a domestic lithium extraction venture by Vulcan Energy, where a €150 million state commitment helped unlock around €2.2 billion in investment. 

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The second supports an Australian rare-earths project by Arafura Rare Earths with as much as €50 million. At least two additional investments are expected later this year, one of the people said.

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Alongside direct capital injections, the fund — managed by state-owned lender KfW — also relies on guarantees that account for most of its overall capacity. Whether those guarantees will also be increased remains unclear.

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The additional funding still requires parliamentary approval as part of the 2027 budget process in July and could yet change.