German-Chinese Business Relations Boom

China's economy is booming. At 7 to 8 percent rates, the country's growth has reached a level that economically stagnant Germany can only dream of. But Germany has a share in the growth too, as the country's biggest European investor. It injected €1.4 billion ($1.6 billion) of the roughly €53 billion ($62 billion) in foreign direct investments in China in 2002. Last year it overtook Japan as the most important Asian country for German exports.

"China is the most dynamic gravitation center in the southeast-Asian area," Federation of German Industries head Michael Rogowski said at a Sino-German business conference sponsored by the magazine WirtschaftsWoche on Oct. 22-24 in Berlin.

The country has enormous potential for German companies. "Today China is the savior for many," Klaus Grimm, the head of German Industry and Commerce (GIC) in China, an organization aligned to the German Chamber of Commerce, told Reuters. Around 2,000 German firms are active in China, according to Grimm.

Cheap labor, many markets

Only the giants of German industry had dipped their toes into the Chinese market until recently, mainly through joint ventures with Chinese state firms. Then China started producing cheap products that were sold in the world's richer countries, and the economic boom began. Now German small and medium-sized companies are also starting to discover China. Instead of making products to sell abroad, the Germans are producing for the domestic market of 1.2 billion Chinese.

"One result of opening to foreign trade companies too is that the quality of domestic producers has become noticeably better," said Hans-Joachim Körber, CEO of Germany's Metro retail group. "That shows that competition leads to a better supply for the population, normally at favorable prices and of a higher quality."

Metro employs 5,000 people in China in its 18 cash & carry markets. Its turnover has reached €600 million ($706 million) in China, slightly more than 1 percent of the group's entire yearly turnover. The company plans to increase total Asian turnover to 10 percent by 2010.

But Metro has determined that China is not just one big market. "China is a continent," Körber stressed. He explained that Metro had had to adjust to China's size, which meant addressing numerous regional markets.

German know-how

For its part, China is keen on learning from Germany, illustrated by the fact that 30,000 Chinese are students at German universities.

"Germany has very competent producers, good products and very good engineering," Hong Xing, the vice chairman of Brilliance China Automobile Holding, said. "And China needs all that. We're just getting started ... But we have a large and growing market and cheap labor."

When German Chancellor Gerhard Schröder visits China in nearly a month, the GIC intended to announce it would open a fourth office -- after Shanghai, Beijing and Guangzhou -- in the southwestern city of Chengdu.

But a clouds have moved in on the horizon: Chinese authorities have refused to renew the GIC's business license in Shanghai and Grimm and his four German colleagues have lost their residence permits.

The Chinese were responding to a German media report alleging 50 German companies had complained that the GIC was competing with them by offering legal, training and visa services to small and medium-sized companies. The Chinese authorities are now investigating the German business delegation's practices.