Photo Gallery: China's Rise to the Top

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Economic Superpower Chinese Expansion Has Germany on the Defensive

The German economy has grown dependent on China in a development that is now coming back to haunt it. With a global trade war brewing, it will be impossible for the government in Berlin to please both Beijing and Washington. It's time for a new strategy. By DER SPIEGEL Staff

China has already taken a significant step into Germany. In the Rheinhausen district of Duisburg, trains are now rolling across the site where steelworkers once fought unsuccessfully to save their mill in 1987 while shipyard cranes stack up containers on the banks of the Rhine River. This is the precise point where the New Silk Road, China's massive infrastructure project, comes to an end.

The site in Duisburg is known as Logport I and it is one of the largest container ports in Europe. Twenty-five trains arrive each week at Terminal DIT, also known as the China Terminal, after having traveled the more than 10,000 kilometers from Chongqing across Kazakhstan, Russia, Belarus and Poland.

Four years ago, Chinese President Xi Jinping visited the inland port. The engine of a train that arrived from China that day was decorated with red paper dragons for the occasion and Erich Staake, CEO of the Duisburg port, was also on hand.

Staake, who, like the Chinese president, was born in 1953, sees the rail connection as a boon both for the port and for the entire region, which badly needs it. "We want to grow," he says. "China and the New Silk Road offer us great potential." One way of seeing it is that the trade route brings China and Germany that much closer together.

There is, though, another way of seeing it: Namely that the multibillion-dollar project provides the Chinese with a kind of bridgehead in Europe from which they are pushing their expansion across the Continent and broadening their economic influence.

So which is it? An opportunity or a threat?

It isn't easy to find an answer to that question -- and that itself is telling. Chancellor Angela Merkel's visit to China this week will have a different flavor to it than her previous 10 visits to the country. The relationship between the two countries has changed in the interim and is no longer as balanced as it once was.

Until recently, the relationship had seemed almost symbiotic and the roles were clear: Germany sold high-end machinery and vehicles in China, including more than 5 million automobiles in 2017 alone. In return, China exported furniture, refrigerators and electronic devices to Germany at unbeatably low prices. But now, China has reached adulthood much more quickly than expected.

Not all that long ago, China was a developing economy, seen by industrialized countries in the West as a gigantic market where they could sell their goods. Then, it became the world's factory, a place with inexhaustible resources. Now, however, it has matured into a powerful competitor capable of leaving Germany in its dust. Chinese companies are developing intelligent machinery and production facilities; they are building cars, many of them with electric motors; and they're making inroads into sectors that used to be Germany's private domain. China has figured out how to copy Germany's successful model and is now becoming a danger to the original.

'The Mechanics Have Changed'

Mikko Huotari was one of the first to identify this development several years ago. Huotari is a scholar at the Mercator Institute for China Studies (merics), a think tank in Berlin. The old logic which held that "China needs us" is no longer true. In fact, he says, the situation has flipped: Germany is increasingly reliant on China as the country increasingly becomes a driver of global innovation. "The entire mechanics of the system have changed."

Just how confident, or perhaps even aggressive, the Chinese have become can be seen when they buy companies in Germany. They used to target second-tier firms, but in recent years, the focus has increasingly shifted to key industrial players. "Germany is home to around 1,000 mid-sized companies that are global leaders in their sectors. The Chinese want access to them," says Kai Lucks, head of the Federal Association of Mergers & Acquisitions in Germany.

Recently, Chinese buyers have even shown an appetite for companies listed on the DAX, Germany's blue-chip stock index. In February, billionaire Li Shufu quietly acquired a 10 percent stake in Daimler. Dieter Zetsche, the company's chairman of the board, believes that an additional large Chinese investor may also acquire a stake in the company: the state-owned firm BAIC, Daimler's Chinese partner. Politicians and executives are beginning to wonder what large company might be targeted by Chinese investors next.

Along with those investments, uncertainty has been growing. And it's not just coming from the Far East. Reliant as it is on exports, the German economy is sensitive to shifting trends in global trade and Merkel's visit to China this week is coming right in the middle of a period of transition. China is growing stronger, America has become unreliable  and Germany has to figure out what its new role will look like.

The economy has become used to seemingly eternal growth in the Far East, with exports to the region almost tripling in the last 10 years. But what will happen once China begins building high-tech machines of its own or exporting its own electric vehicles? That's the point when German industry will quickly become painfully aware just how dependent it has become on China.

At the same time, though, German companies are confounded by the erratic course currently being charted by the U.S. president in Washington. If Donald Trump chooses to introduce punitive tariffs on steel and aluminum imports on June 1 and the EU retaliates, Germany will become even further alienated from America, which is still its top export market. This development likewise poses a significant risk to the domestic economy.

And everything is overshadowed by the potential of a trade war between the Western superpower and the Eastern superpower. The Trump administration accuses China of unfair trade practices and massive theft of intellectual property. As a consequence, he has threatened to introduce punitive tariffs worth $150 billion and China has vowed to respond in kind should he do so.

If both countries follow through, Germany would find itself in a hopeless -- and extremely dangerous -- position directly between the front lines. If Germany makes concessions to one side, the other side will be displeased. The country must find a solution to this dilemma, but it isn't clear what that might look like. How might a new trade strategy look, particularly with regard to China?


There is a date that marks the turning point in Chinese-German relations: May 18, 2016. That was the day that the Chinese company Midea announced its intention to takeover KUKA, a global leader in industrial robotics. Union leader Armin Kolb says that the news initially terrified him. "I'd by lying if I said otherwise," he says.

Kolb is head of the works council at KUKA. When the announcement came two years ago, 3,000 employees gathered at the Augsburg factory, he recalls, all of them concerned about what the new ownership had planned for the company -- whether they would break it up, move some departments elsewhere or even close the whole thing down. The possibilities seemed endless.

Today, two years later, Kolb seems unperturbed. Midea has committed to retain the company headquarters, refrain from moving or closing factories and to preserve jobs. The agreement is valid until 2023. "We got the best deal we possibly could," says Kolb.

The brawny works council head is in his mid-50s and he will soon celebrate 40 years working for KUKA, having started in 1978 as a lathe operator in Hall 2. Today, the building is used to demonstrate what the factory of tomorrow will look like. A mobile transport system moves an automobile door toward a group of four robots, which identify the part, bend their arms toward it and begin welding. "There's not much milling and lathing around here anymore," Kolb says.


KUKA is considered a pioneer of Industry 4.0, the digitally networked economy. That's why the Chinese purchase of the company became a political issue, almost as if Beijing had bought the Brandenburg Gate in Berlin and painted it red.

At the time, Germany's EU commissioner, Günther Oettinger, said that KUKA cannot be allowed to fall into Chinese hands because it "is a successful company in a strategic sector that is important for the digital future of European industry." Germany's economics minister at the time, Sigmar Gabriel, was also concerned. His ministry sought to encourage German multinationals like Siemens or Bosch to make a bid of their own, but they all declined. And the owners of KUKA went ahead with the sale.

Widespread Angst

The deal was a wake-up call for economic policymakers in Germany. It wasn't the first time that Chinese buyers had gone on a shopping spree in the country, with companies from China already having acquired such big-name and highly specialized firms as KraussMaffei and Putzmeister. But the KUKA sale triggered widespread angst.

It is unclear why. Up to that point, the experiences of companies with Chinese ownership had been largely positive. A study conducted by the Hans Böckler Foundation found that companies under Chinese ownership were largely satisfied with their new employers. The investors from the Far East, the study found, largely stayed out of day-to-day decisions, refrained from closing factories, invested in new facilities and created more jobs.

Currently, the foundation is working on an update of the study. And while it hasn't yet been completed, it is safe to say that the management boards and works councils that have thus far been surveyed aren't quite as enthusiastic about their Chinese investors as they once were. "Cracks have appeared," says Oliver Emons, one of the researchers involved in the study. Pressure on jobs has increased, he says, while new ownership has begun playing a greater role and some are clearly primarily interested in acquiring know-how.

China experts refer to it as the "Haier Strategy," named after the home appliance manufacturer based in Qingdao. For years, the company systematically swallowed up its competitors. Yet in doing so, the company was less interested in the profits that could by made through the acquisitions. Rather, they wanted the brands, the technologies and the sales reach they provided. Today, Haier is a global market leader, with every fifth freezer sold coming from the Chinese company.

It remains to be seen if KUKA is facing a similar future. For the time being, at least, there are no indications at the company's Augsburg headquarters as to who the new owners are. The name Midea is nowhere to be found, not even in the stationery small print. And the white-orange company flags are still flying above the entrance. Only briefly, back in January, were red flags to be seen here -- but they were from the labor union IG Metall, waved during a warning strike.

There has also been continuity in the company's upper echelons. Till Reuter has been CEO since 2009 and during a recent dinner at a robotics trade fair in Hannover, he asked those present if anything had changed under Chinese ownership. They all shook their heads.

A Trojan Horse on the Factory Floor

For Reuter, though, one thing has changed. Once a month, he flies to China to take part in Midea board meetings at company headquarters, located in Shunde, just outside of Hong Kong. Reuter says that Midea allows KUKA to grow much more quickly than would otherwise have been possible, such as in robots for mobile phone factories or to assist during operations in hospitals. "We see a huge potential there," he says.

Thus far, KUKA's specialty has been customers from the automobile industry: The company's products have been deployed in German car factories for decades. The firm has acquired unique insight into manufacturing processes in those factories, how models are chosen, and the technologies employed. But ever since KUKA's change in ownership, some clients have expressed reservations, concerned that their company secrets could fall into the wrong hands. Nobody, after all, wants to invite a Trojan horse onto the factory floor. KUKA executives have increasingly found themselves having to promise that the company remains trustworthy. When such concerns are raised, Reuter points out Midea's contractual obligation to protect client data. "It is something I vouch for."

KUKA is a German company that pays its taxes here, the CEO insists, the only difference being that it has a Chinese owner. During the trade fair in Hannover in April, the chancellor once again dropped by the KUKA stand, which Reuter welcomes as "an important signal." Naming former SAP head Henning Kagermann to the supervisory board, with his excellent political connections, can also be seen as a trust-building measure.

On the other hand, though, the robotics company will be investing primarily in Shunde in the coming years, in the form of a new, 400-million-euro production facility. KUKA will develop new products at the site and produce around 75,000 robots per year there by 2024 -- three times as many as in Augsburg.

The future of robotics -- and of KUKA -- it seems, is in China. That much is clear, even if the deal with Midea to retain the company's current headquarters in Augsburg runs for another five years.


KUKA is exactly the kind of company that China is looking for. After all, the country has a plan. Few in Germany took much notice when Beijing announced it in the form of a document called "Made in China 2025." Written in the rather unwieldy terminology of communism, it describes how China intends to become an economic superpower. It was essentially the equivalent of throwing down the gauntlet to the West.

The plan calls for transforming China into a "major manufacturing power" by 2025, reaching an "intermediate level among world manufacturing powers" by 2035 and becoming "the leader among the world's manufacturing powers" by 2049, the centennial of the founding of the People's Republic. The master plan does not allow for potential economic crises. "Advanced technology is the sharp weapon of the modern state," President Xi said in a 2013 speech that offers a powerful expression of the country's new industrial strategy. "Our technology still generally lags (behind) that of developed countries, and we must adopt an asymmetrical strategy of catching up and overtaking."

What he means is that he wants to make more rapid progress than others in 10 key fields: information technology, automation and robotics, aerospace and aeronautics, oceanographic engineering and high-tech shipping, high-speed rail, electric vehicles, electric power equipment, agricultural machinery, new materials, pharmaceuticals and medical equipment.

In contrast to previous long-term plans, the 2025 strategy seeks a global reach. Its goal is that of leaving behind Western competitors and transforming domestic companies into international champions. It is a blueprint for restructuring the country's economy, from the factories to the laboratories, from industrial production to the service sector, from state-owned factories to privately owned businesses.

How Can Europe Stand Up to China?

Other countries have pursued similar strategies in the past, including South Korea, Japan and, perhaps most significantly, Germany, whose industrial history Chinese experts studied closely before presenting China's own plan. "The catch phrase 'Industry 4.0' hit China like a bomb," says Changfeng Tu, who is a partner at the law firm Hengeler Mueller. It provided the blueprint for "Made in China 2025."

The difference is that China is governed by an authoritarian system and the country is vast in size. If the Chinese leadership wants to, it can revamp entire economic sectors, as it did previously in the steel and solar industries. And now, it is doing the same in the automobile industry, Germany's preeminent economic sector.


It used to be that German automobile executives viewed a transfer to China as a punishment. These days, though, it is seen as a promotion. Jochen Goller, 52, was appointed in March to lead BMW's operations in China. "China has become the pacesetter for electromobility and high-tech," he says while sipping green tea on the 29th floor of a Beijing skyscraper.

A few weeks ago, BMW announced that it would be building the electric versions of its compact Mini and its X3 compact SUV in China. The company believes that sales will be stronger in China: Whereas the markets in Europe and the U.S. have stagnated, BMW grew by more than 15 percent in China last year. A quarter of all the BMW vehicles sold last year were sold in China, while the country was responsible for sales of one-third of Audis vehicles.

Demand is particularly high for premium models with expensive options. At the same time, labor costs in China are still significantly lower. That has led to huge profit margins for automobile manufacturers that are up to twice as high as elsewhere in the world. And it has led to an increasing dependency on the Chinese market: Daimler now earns 20 percent of its profits in the country, BMW 28 percent and VW fully 43 percent. Company bean counters refer to such a situation as a "concentration risk."

That is particularly the case now that the dominance of German manufacturers appears to be crumbling, with competitors like Geely, Great Wall and BYD rapidly catching up. They learned from the Germans how to set up huge factories and build hundreds of thousands of vehicles per year. "Many Chinese manufacturers have developed into serious challengers," says Goller. In particular, they are hoping to become global leaders in electric vehicles.

Consequential Steps

And the strategy appears to be working. The five most popular electric vehicles in China are all built by Chinese companies. Though the development is massively subsidized by the state, which funds research and development in addition to ordering municipalities to purchase electric cars. Beijing is only interested in the result: Customers can now choose from around 100 different electric models, an assortment that German consumers could only dream of.

Even at BMW, a pioneer when it comes to e-mobility, there is growing concern. Works council head Manfred Schoch warns of looming Chinese dominance over the market. "We have superior know-how when it comes to diesel and gasoline engines," he says. "But in e-mobility, the Chinese are challenging our technological leadership." He says they have planned much further into the future and taken consequential steps to make that future a reality.

Beijing has purchased mines in Africa to secure supplies of lithium and cobalt, both essential raw materials in the production of batteries. Companies like BYD and CATL, which are hardly known in the West, are building one battery factory after the next. And what are the Germans doing? Bosch, a major supplier of components to the automobile industry, decided against building its own battery production facility. The investment risk, allegedly as high as 20 billion euros, was too large for the company. But the result is that the German automobile industry is in danger of becoming reliant on suppliers from East Asia for the most important component of electric vehicles.

China is also aiming to take the lead when it comes to digitally networked vehicles. The consulting firm McKinsey forecasts that by 2030, the country will become the largest market in the world for self-driving cars and related mobility services. The Chinese companies behind this development are Alibaba and Tencent. Each tech company is worth almost $500 billion, seven times the value of BMW. The gap clearly shows where investors see the future.


This week, the chancellor can see for herself the technological expectations the Chinese have and the progress they have already made. When Merkel visits the high-tech metropolis of Shenzhen in southern China on Friday, she will see firsthand one of the most spectacular airport structures in the world. The new terminal at Bao'an Airport stretches into the Pearl River Delta like a gigantic octopus. The building is symbolic of the ambitions of the city, with its 12 million inhabitants, as it seeks to become a high-tech hub in China.

Shenzhen is already home to mobile telephone giant Huawei, the online service provider Tencent and global market leaders like the drone manufacturer DJI. It is a place where startup founders and venture capitalists come together to test the boundaries of what is technologically and financially possible. Just over a quarter hour's drive from the airport, a modern office tower is nearing completion. Once it is finished, it will form the nucleus of the "exemplary Chinese-German industrial zone of Bao'an," as it says in an online brochure.

The concept for the project was developed at the Hannover Trade Fair two years ago. In Bao'an, the initiators hope to link Germany's "Industry 4.0" concept with the "Made in China 2025" strategy. The industrial park is set to open its doors early next year, complete with a Chinese restaurant on the fifth floor and a German restaurant on the fourth. And there is to be a screening area where people can watch German football matches together.

Like Germany since the Industrial Revolution, Shenzhen is a place that combines technical know-how with industrial application -- a high-tech laboratory that still has the sheen of novelty. "The possibilities that Shenzhen offers are almost limitless," says German engineer Jens Höfflin.

Wearing shorts and flipflops, Höfflin can be found at the startup community HAX. Together with his American partner, the 36-year-old developed a mobile magnetic resonance tomography device in Boston that will help heart and kidney patients avoid constant hospital visits. At HAX in Shenzhen, they have received funding to do an initial production run. Höfflin says it is easy to find whatever you might need in Shenzhen, whether it be circuit boards or die casting components. "Within a radius of just a few kilometers, you can find the right factory for production," he says.

At the next desk, a startup founder from Australia is examining a prototype of a device that enables the monitoring of large herds of sheep. It is already the third iteration of his product, he says, adding that he returns to Shenzhen each time he makes an upgrade.

Protection Against Regime Access

It used to be that Shenzhen's low prices were the city's main selling point, Höfflin says. "Now, though, it is its huge selection of suppliers." The Chinese target young German entrepreneurs to bring to Shenzhen, hoping to profit from their know-how. But they also head to Germany themselves.

Last year in Munich, for example, Huawei opened its second research and development center. Around 300 experts are currently working on G-5 technology at the site, the next generation in mobile telephony. They are developing specialized antennas and semiconductors for smartphones. "Huawei sees Europe as a second domestic market and Germany is the heavyweight," says Torsten Küpper, an executive at the German branch of Huawei.

No other company in Europe applied for more patents last year -- not even Bosch or Siemens. When it comes to information and communication technology, Küpper believes that Huawei is the global leader. Now, though, the company is focusing its attentions on connecting industry in addition to connecting people, he says, which is why it has come to the Munich region, which is home to many mechanical engineering and automobile supply companies.

As a network supplier for German industry, Huawei finds itself privy to sensitive company data and has deep access to the technological nervous systems of its clients. Many have reservations about allowing a Chinese company such access and part of Küpper's job is to dispel those fears. "Of course, we respect patent and data protection laws, just as we ourselves wish to be respected," the executive says. He adds that Huawei resembles a large cooperative and that the company belongs to its employees.

Still, such an ownership structure does not provide protection against regime access from Beijing. Companies like Huawei are closely watched in the West. The Trump administration cut off ZTE, a Huawei competitor, from U.S. suppliers from one day to the next because it violated sanctions on North Korea. A few days ago, Trump struck a more moderate tone when it came to the company's future, but whether it ultimately survives is dependent completely on the moods of a moody president.

Huawei isn't nearly as exposed in America as ZTE, but Europe too could ultimately reach the conclusion that mobile telephone networks are of systemic importance. Mistrust is growing, particularly as it becomes increasingly clear how strategically China is expanding its economic influence into Europe. And it is doing so by way of the New Silk Road.


Chinese President Xi presented the idea for a new world order shortly after entering office in 2013. The Silk Roads Initiative is a network of trade and energy corridors, pipelines, railway lines and shipping lanes that are to span the entire Eurasian region by the middle of the century -- and all of them begin in China.

Xi presented the plan as one for a "common future for humanity" aimed at making "globalization more open, inclusive and balanced." But in practice, 89 percent of all infrastructure contracts are given to Chinese construction companies. And the main purpose of these projects is to secure trade corridors that can be used by China to import raw materials and to export its goods.

The initiative initially focused on economically stricken countries like Myanmar, Sri Lanka and Pakistan in addition to Central Asian countries. But the stronger China grows, the more concrete projects have become further along the route -- from the construction of a high-speed rail line between Belgrade and Budapest to its investment in the Port of Piraeus in Greece. And, of course in Duisburg, at the western terminus of the New Silk Road.

Sino-German project developer Starhai is currently planning a trade center directly next to the city's Chinese-owned container port. Chinese companies are expected to set up shop in the building to sell their products in Europe. And that will also generate business for the rail connection from the Far East.

The trade center's success, in other words, will in part be dependent on whether the hopes that port director Staake has for the rail connection are, in fact, realized. The first train carrying a shipment of electric cars made in China is expected to travel to Duisburg later this year. For the time being, the connection is only viable because it is being massively subsidized by China. With an average travel time of 13 days, it is also not the fastest means of transportation.

From central China to the EU's external border, though, the journey only takes six to seven days. But the short final leg, which makes up just a 10th of the entire journey, takes that much time again. Staake says there are many reasons for the delays, some of which have to do with rigid rules on working hours, others with bureaucracy. Either way, he's not impressed.

For Staake, the delays the trains are facing is symbolic of how irresolute the Europeans are in their approach to the Chinese. "China is proceeding strategically, whereas Europe is still discussing how it should handle the initiative." He says the EU needs to come up with a position. "You can't win games just by playing defense," he says.


The threat has long since been identified and Europe has spent months wrangling over a joint position on China. In September, European Commission President Jean-Claude Juncker announced a "new EU framework for investment screening," designed to monitor the purchase of companies by foreign entities. The proposal faces a vote by the European Parliament's International Trade Committee in just over a week. But before it can become a law, it must also be approved by a qualified majority of the European Council, the powerful body that represents the 28 EU member states.

The issue is anything but decided. Back at an EU summit last summer when the issue of the KUKA acquisition was still fresh on people's minds, Chancellor Merkel said that the EU needs to better monitor investments from China. But the correlating passage in the summit's closing statement was ultimately watered down following pressure from Greece and the Czech Republic. Both countries maintain close ties with China.

As such, it seems likely that there will be a lot of wrangling inside the European Council. The European Commission's proposal envisions giving EU member states the ability to review foreign direct investments that might affect their security, critical infrastructure or public order. The Commission can offer its opinion, but the ultimate decision will be made by the member country in question. In an interview with DER SPIEGEL last week, European Trade Commissioner Cecilia Malmström said those member states should be provided with "instruments" that would allow them to review such investments according to standardized criteria. "If we act together on this, maybe we will give member states the strength to say no to some tempting proposals," she said.

For members of the European Parliament with Angela Merkel's conservative Christian Democrats, that doesn't go far enough. They are calling for the European Commission to be given complete responsibility for the reviews. "The Chinese already have so much influence in a few EU member countries that there is no guarantee that screening will actually take place," says Daniel Caspary, the chairman of the parliamentary group of the German Christian Democrats in the European Parliament and a member of the International Trade Committee. He argues that if the Commission considers a screening to be necessary, it may also have to be prepared to implement it against the will of the country in question.

But leading European politicians fear it may already be too late to curb China's growing influence. With the Silk Road Initiative and the 16+1 format, China is already in the process of driving a wedge through Europe, they argue. The 16+1 format includes the 16 Central and Eastern European countries plus China. Beijing initiated the format six years ago as a counterbalance against Russia and the EU. It includes countries like Serbia and Macedonia, but also EU member states such as the Czech Republic and Hungary.

At the last 16+1 meeting in Budapest, Chinese Prime Minister Li Keqiang held court as European leaders voiced their desire for Chinese investment. According to a meeting participant, one European head of government after the other was asked to address Li, each naming a project where Chinese money would be most welcome.

The Chinese, in other words, don't have to fight for influence -- they are essentially courted by European politicians. Hungarian Prime Minister Viktor Orbán has even threatened more or less openly that his country might turn to China if the EU doesn't cough up enough money or becomes too critical of his leadership.

The European Commission was able to insist that a representative of the EU executive be present at the 16+1 meetings. And when it comes to trade issues within the single market, all responsibility lies with the EU. Individual countries like Hungary cannot close any such deals with China without first coordinating them with the European Union.

EU diplomats have pointed out that Germany is not exactly blameless when it comes to the divide that is now cutting through Europe. They say that one reason Eastern European member states may be going their own way is because Germany in the past has been so eager to ensure the best possible access to China for itself. Now, Berlin must learn to learn to deal with the fact that China has become a direct competitor. So far, though, the only response has been a mishmash of guerilla tactics and stricter laws.


In terms of protecting German business, Economics Minister Peter Altmaier of Merkel's Christian Democrats recently shared the story of the State Grid Corporation of China. The state-owned company wanted to invest at the beginning of the year in the Berlin electric utility company 50Hertz -- an interest that appeared to confirm concerns about China's hegemonic aspirations. But the German government feared that the Chinese government might gain too much influence over the German power grid if it were allowed to buy shares in the company.

But then the Belgian company Elia snapped up the shares before the Chinese could get them in a deal where Altmaier was pulling the strings behind the scenes. "It did take a few calls to Belgium," he says with pride. Sometimes cunning -- and being able to speak a country's language -- can be enough to thwart the covetousness of Chinese investors.

Broadly speaking, though, the Economics Ministry is largely powerless when foreign investors target German firms, even in cases like 50Hertz. The ministry is only able to intervene and stop a purchase under the German Foreign Trade and Payments Act if the acquisition affects national security interests. Despite a tightening of the law last summer, very little has changed. Since then, the ministry has reviewed 62 acquisition transactions, but it has not yet halted a single purchase.

Altmaier is not happy about his limited ability to act in such cases and he is considering making changes to the law. Under the current rules, his ministry is only able to review a sale of 25 percent or more of a German company. Yet in the case of 50Hertz, that level was not reached. As such, Altmaier would like to lower the bar to 10 percent.

But the battle against China can't be won solely on the basis of regulatory policy. Rather than leading a defensive fight, Altmaier would prefer to act constructively and promote German researchers, engineers and IT specialists. German universities are producing new young talent, "but they would rather go to the U.S.A. than translate their skills into concrete products for Germany companies," Altmaier laments. The minister wants to stop the brain drain trend by establishing research institutes or programs promoting artificial intelligence.

He would like to see the first leading global mobility platform arise out of Germany. The vision is that of a seamless system allowing you to book carsharing in Berlin to get to the airport, a flight to Shanghai and then the subway ticket to get to your hotel once you are there. Altmaier would hate to see a company like Amazon or Alibaba be the first to launch such a product.


Such an effort is by no means a bad idea, but it hardly represents a strategy for dealing with China. And yet the ideas coming out of Brussels and Berlin for standing up to China have at best been piecemeal. Germany needs to do a lot more to challenge China if it doesn't want to see itself ultimately become irrelevant as a manufacturing and exporting nation.

One central aspect of such a strategy is the need for reciprocity -- the idea that whatever China can do, Germany should be able to do as well.

Currently, for example, it is much easier for a Chinese company to invest in a German company than it is the other way around. "The lack of reciprocity … violates fairness principles that the post-WWII economic order was built on," states an April report by merics in Berlin. The institute estimates that fully three-quarters of the major acquisitions made by Chinese companies in Europe since 2000 would not have taken place had Chinese rules applied here.

As such, it would be fair to remove this imbalance. Kai Lucks of the Federal Association of Mergers & Acquisitions suggests that the German government ought to show confidence when dealing with Beijing. "China reacts to pressure," he says. And Germany, he argues, should ratchet up that pressure, "particularly because the Chinese government views this relationship as being very important."

Germany, though, cannot go it alone. Berlin needs to ally with other European countries and develop a common industrial policy.

The rail industry has demonstrated in recent years how that could work. When China merged two manufacturers to create CRRC, the world's largest railway group, its competitors in Europe were quick to respond. Germany's Siemens (the manufacturer of the ICE high-speed train) and its French competitor Alstom (the maker of the TGV) announced they were merging their rail manufacturing operations. Their plan is to create a kind of "Airbus on rails," a European champion that would sell high-speed trainsets on the global market as an alternative to CRRC.

A similar approach could also be conceivable in the battery industry. Batteries represent by far the most expensive elements in electric cars and China has invested billions in manufacturing plants, taking the lead on the global market in the process. If the European automobile industry wants to remain a player and keep its hands on this part of the value creation chain, it will have no choice but to manufacture batteries itself .

Just a Supplier

BMW works council head Schoch is calling for a master plan, one that would be backed by Berlin and Brussels. "If we don't build battery factories for electric cars in Europe, then the Chinese will," he says. His idea is for BMW, Daimler and Volkswagen to join forces to build the first major plant. Doing so, according to his calculations, would cost a maximum of 1.5 billion euros.

If the plant is successful, others could follow. "Those who don't master this future technology will find themselves out of the game at some point," Schoch warns.

Not much time is remaining for the creation and application of a China strategy. The country is indefatigable when it comes to climbing further up the ladder of progress. A recent survey conducted by the German Chamber of Commerce for Greater China found that more than 40 percent of German companies represented in the country believe that China would rise to become an innovations leader in their respective industry within five years. The organization's office in Shenzhen has been equipped with a special team to observe developments in the city in what it describes as "technology scouting" for the Mittelstand, as the small- and medium-sized companies that form the backbone of the German economy are called.

Chamber of Commerce head Jan Hildebrandt notes that it's not as if everything that China undertakes translates into an automatic success. Industrial parks like the one in Bao'an have also produced disappointments. But the Chinese aren't afraid of setbacks. Just a few kilometers from Bao'an, the city is building the world's largest trade fair center -- in a country that already hosts some of the world's largest industry trade fairs.

Hildebrandt says it's good that Chancellor Merkel is visiting Shenzhen because the city will give her a good sense of how quickly the "world's factory" has transformed into a center of innovation. But she will also be forced to realize that Beijing's "Made in China 2025" plan has assigned Germany a role it isn't accustomed to. "At present, we are just a supplier," Hildebrandt says.

By Simon Hage, Martin Hesse, Alexander Jung, Peter Müller, Gerald Traufetter and Bernhard Zand

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