In 2012, when then Chinese premier Wen Jiabao paid a visit, he
announced an aim to hike bilateral trade to $280 billion by 2015, a
target that seemed ambitious but realistic at the time, given a 54
percent surge to $180 billion in the prior two years.
Business ties were flourishing, exemplified by Chinese construction
group Sany's record-setting purchase of Mittelstand firm Putzmeister
months before Wen flew in. And Berlin, grappling with the euro zone
debt crisis, was keen to cultivate closer economic and political
ties to Beijing.
But two years on, the rapid rise in trade has stalled — slipping
back in euro terms — and German companies are diversifying into
other emerging markets, from sub-Saharan Africa to Latin America,
spooked by rising Chinese wages, slowing growth and official
pressure to expand into China's restive western regions.
Suddenly, alongside China, countries like Ghana and Colombia are
being talked about as priority targets for German business.
"We had our pivot to Asia. Now a lot of companies are asking whether
they shouldn't be swinging in another direction," said Stefan Mair,
executive board member at the Federation of German Industries (BDI)
in Berlin. "Those companies that have invested heavily in China are
beginning to view their presence more critically."
Germany's economic ties to China dwarf those of its European
counterparts. Led by the big carmakers, German firms moved into
China faster and more aggressively than many of their rivals.
Volkswagen was the first foreign auto manufacturer to set up shop
there over 30 years ago. Last year, China accounted for a fifth of
BMW's sales, well above the 13 percent it makes in Germany.
Annual trade flows between China and Germany exceed Chinese trade
with France, Britain and Italy combined.
But the lofty expectations of a few years ago, when Chancellor
Angela Merkel's dominant role in the euro zone debt crisis made her
the go-to European leader for Beijing, have given way to a more
realistic sense of what the relationship can deliver.
Berlin and other western capitals welcomed China's decision this
month to break from Russia and abstain in a United Nations vote
condemning Crimea's referendum to secede from Ukraine. Yet there is
little optimism that Beijing can be pried away from its strategic
partnership with Moscow on other issues of global importance.
There is also concern in Berlin about the country's increasingly
confrontational stance towards Japan. German officials pushed back
against Chinese suggestions that Xi go to the Holocaust memorial
during his visit, aware the event could be used to send a message to
Tokyo about post-war contrition.
In political as well as corporate circles, there is also nervousness
that Germany's close economic ties to China could create an
Last year, a decision by the EU to impose punitive duties on Chinese
solar panels prompted threats of retaliation from Beijing that
deeply unsettled automakers and other German firms with a big
presence in China.
They lobbied Merkel to prevent a full-blown confrontation,
eventually getting their way, but also raising uncomfortable
questions about China's ability to influence political decisions in
"If we get too dependent, there's no question that the Chinese will
seek to use their leverage," one senior German official
acknowledged, pointing to the solar row. "Already, we have to ask
ourselves at what point we've crossed the rubicon with the auto
For Beijing, the solar dispute underlined the importance of
cultivating ties beyond Berlin.
Last May, Germany was the only EU country that newly appointed
Premier Li Keqiang chose to visit.
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Xi, by contrast, has passed through the Netherlands and France, and
after Germany he will visit EU institutions in Brussels, a first for
a Chinese president, and give a speech on EU-China relations at the
College of Europe in Bruges.
"By visiting Brussels, Xi is sending a clear signal that he has the
EU in sight," said Eberhard Sandschneider, a China expert who heads
the German Council on Foreign Relations (DGAP).
Germany still enjoys special status for China within Europe.
Germany's reluctance to get involved in foreign military adventures
mirrors China's hands-off approach.
And since Merkel's decision to meet the Dalai Lama in 2007, which
led to a six-month chill in relations, Germany has been less
outspoken about China's human rights record than some of its
"The Germans are sometimes described in Beijing as the Chinese
Europeans — the greatest of compliments," an EU diplomat in Beijing
German firms make the high-quality machinery and equipment that
Chinese counterparts need to produce their goods. And German direct
investment in China is on the rise again after dipping in 2012,
according to Bundesbank data.
Officials at Volkswagen say they have no plans to weaken their
commitment to China, where the passenger car market is expected to
grow by 5-7 percent annually in the coming years, far higher than
other major markets.
VW shrugged off revelations in 2012 that its long-term Chinese
partner FAW was stealing technology from their joint venture to
produce its own engines and transmission systems.
Its decision to build the first car assembly plant in the
politically unstable northwestern region of Xinjiang has won it many
new friends in Beijing, said one senior VW official.
But Sebastian Heilmann, director of the new Mercator Institute on
Chinese Studies in Berlin, believes the honeymoon period between
Germany and China is at an end.
Hopes in Beijing that Germany — and the broader EU — might become a
geopolitical counterweight to the United States have been dashed by
the closing of transatlantic ranks in the Ukraine crisis and by
plans for an ambitious free-trade deal between Brussels and
For German companies, the promise of the Chinese market has become
clouded by a less rosy economic picture, consumer protection
crackdowns targeting foreign firms, cyber-security concerns and
"There is a degree of disenchantment setting in," said Heilmann.
"Many managers are being forced to recalibrate: instead of racking
up record sales, they are suddenly being forced to cope with
structural change and cost cutting."
Sandschneider of the DGAP says "diversification" is now the big
theme for German industry.
"Nobody wants all their eggs in the uncertain Chinese basket," he
(Additional reporting by Andreas Cremer in Berlin, Ed Taylor in
Frankfurt, Ben Blanchard and Michael Martina in Beijing; writing by
Noah Barkin; editing by Will Waterman)
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