Beijing's High-Tech Ambitions The Dangers of Germany's Dependence on China
Part 4: Warning Signs for German Industry
But the Chinese solar cells are by no means of poorer quality. Only a few years ago, Chinese modules had the reputation of being more prone to failure and more harmful to the environment, but now the quality has improved dramatically. In fact, a recent study by the Stuttgart-based bank Landesbank Baden-Württemberg (LBBW) concluded that the productivity of Chinese producers is now higher than that of their German competitors. And according to TÜV Rheinland, a technical inspection agency, Chinese solar cells are of high quality.
China owes its rapid rise in the solar industry partly to German energy policy. About 70 percent of its total production is exported, and about half of that goes to Germany, a country known for its generous subsidies for solar electricity.
What's happening in the solar industry should be a warning sign for Germany's most important sector, the automobile industry. Even strong sectors are at risk when China goes on the offensive.
The country is pursuing a dual strategy. On the one hand, China gains access to state-of-the-art technology through joint ventures. On the other, it is developing the technology of the future: electric cars. Chinese companies are already world leaders in battery technology, which could give the newcomer a decisive competitive edge over established European and Japanese carmakers.
VW, Daimler and the like are still benefiting from the China boom more than companies in most other industries. In fact, German carmakers are having trouble producing enough cars to meet Chinese demand. The most popular German cars in China are the large luxury sedans, like the Mercedes S Class and BMW's 7 Series, for which China is now the biggest market worldwide.
VW, Daimler and BMW are building new plants and intend to at least double their production in China. However, these new plants are not VW, Daimler and BMW plants, but joint venture operations between the German manufacturers and Chinese companies.
The Concubine Economy
This form of cooperation has been dubbed the "concubine economy." Just as the Chinese emperors once selected their concubines, China's current leadership selects foreign companies and grants them the right to produce goods locally in cooperation with a domestic partner.
The People's Republic compels the German carmakers to enter into these joint ventures. By imposing high import duties, the government prevents the Germans from simply exporting German-made cars to China. Any company interested in selling large numbers of its products is required to build factories in China with a Chinese partner, thereby giving the country access to their technology.
Beijing began upping the pressure on Western companies to transfer technology to the Chinese partners about five years ago. At the time, the business magazine Zhongguo Caifu published a story titled "Germany as Role Model." According to the article, cooperation with the Germans in the coming 20 years would be the "ultimate weapon" for the "rebirth of China's manufacturing industry."
A campaign by the Chinese company Shanghai Automotive Industry Corporation (SAIC) illustrates what this means in practice. SAIC is involved in joint ventures with both VW and General Motors. When the US carmaker was fighting for its survival last year, SAIC took advantage of its partner's weakness. It gained a controlling interest by increasing its share of the joint venture to 51 percent. The business publication Jingji Cankao Bao wrote triumphantly: "A new model of cooperation between Chinese and foreign automakers has been established."
The Chinese have also become far more self-confident lately in their joint venture with VW, reports a senior employee. In the long term, says the employee, Beijing will hardly tolerate one of the country's most successful companies being run by managers in Wolfsburg.
VW CEO Martin Winterkorn is convinced that the Chinese will remain dependent on German technology for vehicles with classic gasoline and diesel engines. But Beijing intends to extricate itself from this dependency by focusing on new technologies.
The company that is expected to make a key contribution to this effort is called BYD, or "Build Your Dreams." BYD has only been making cars since 2003, but it is the world's second-largest manufacturer of batteries for mobile phones. Its research division has 10,000 employees and has just developed a new type of electric cell designed to power electric cars.
Whether the BYD dream will come true is still up in the air. Daimler, at any rate, is intrigued. The Stuttgart-based company, where the automobile was invented more than 100 years ago, is developing an electric car together with BYD. In doing so, it is testing a new form of cooperation, in which the Chinese partner is responsible for a substantial portion of the innovative technology.