The Ferrari-Red Communists China at a Crossroads in Shift from World's Factory to Industrial Power


By Erich Follath and

Part 3: 'German Industry Has No Choice But to Join Forces with Chinese'

Sany, which employs almost 70,000 workers, is headquartered in Changsha, famous as the city where Mao Zedong studied for six years. The former Chinese leader was also born near Changsha. Dozens of souvenir shops sell small images of Mao, and an oversized statue of the Great Chairman stands in downtown Changsha, his outstretched right hand seemingly setting the country's direction.

But little remains of Mao's egalitarian ideas. The new person he once set out to create is no longer in demand, but rather the person who can frequently afford to buy something new.

The modern building where Sany President Xiang Wenbo has his office is called Dangwei Lou, or Party Committee Building, because Xiang is also a Communist Party leader. But the office is furnished at least as luxuriously as the executive suite of a major German company, with heavy, dark mahogany furniture and modern art on the walls. The floor-to-ceiling window offers a view of a park landscaped with bamboo and a decorative pond. There are four Maybach limousines in the parking lot.

Xiang is bursting with self-confidence, but also with patriotic zeal. He was behind a nationalist Internet campaign that successfully derailed a plan by the Carlyle Group, a US private equity firm, to acquire a majority stake in his Chinese competitor, the Xugong Group. "We can sell everything, just not our country," Xiang blogged polemically at the time.

Why, then, should Germany "sell itself" to China, and why is the Putzmeister deal any different?

Xiang chuckles to himself, and answers the question in a roundabout way. "I am convinced that German industry has no choice but to join forces with major Chinese companies like Sany," says the Sany president. He explains that while Germany has the superior technologies, China controls an enormous market. German companies, he says, need that market to expand and generate profits.

German Success in China Comes with a Price

It's true that China became a lifeline for many German businesses, especially during the years of the worldwide recession, 2008 and 2009. Thanks to a massive government economic stimulus program, China remained liquid, allowing chemical manufacturers like BASF and, most of all, German automakers VW, BMW and Daimler to actually grow their earnings. Volkswagen already sells more cars in China than at home.

But this success has its price. Beijing expects foreign companies to produce locally, bring along their knowhow and form joint ventures with domestic partners. Almost all the companies listed on Germany's DAX blue-chip stock index are active in China. The Germans' high-tech expertise is often "fed" into Chinese companies, which have copied the patents so that trains, cars and machine tools and the original products are often as identical as two peas in a pod. Recently, the Chinese company FAW reportedly recreated an entire VW transmission in Changchun in northern China. This practice can turn partners into dangerous competitors, and it also creates bad blood.

China's dumping activities are an equally serious problem for Western companies. The government subsidizes individual, future-oriented industries with so much cash and loans that they are able to displace their competitors in the world market by charging rock-bottom prices. The solar-panel industry is a case in point. Ten years ago, the United States produced 27 percent of solar panels worldwide, while the Chinese made only 1 percent. Today the American share of the global market is only 3 percent, while the Chinese make about 65 percent of solar panels. The Chinese manufacturers are embroiled in ruinous competition, and the party is likely to allow only three or four major companies to remain on the market. When Washington imposed punitive tariffs, Beijing set off a minor trade war by retaliating with measures of its own against US goods in other industries.

Merkel Avoids Making Public Criticism

The cheap Chinese solar panels also did serious damage to German solar companies, costing thousands of jobs. But during a visit to Beijing in late August -- the second this year, with almost half the cabinet at her side -- Chancellor Angela Merkel avoided any sharp criticism of her hosts, at least publicly, addressing neither human rights issues nor economic problems.

Merkel suggested that the solar dispute ought to be resolved through negotiations, and the large delegation of German business leaders traveling with the chancellor also proved to be tame and timid. Outgoing Premier Wen Jiabao told members of the delegation that they could write to him if they had any problems, as if he were an advice columnist. A few days later, it became clear just how isolated the chancellor is with her soft-line approach, when the European Union refused to be palmed off with vague offers to negotiate and launched an anti-dumping probe into Chinese solar manufacturers.

Sebastian Bersick, professor of international relations at Fudan University in Shanghai, says: "It wouldn't be smart for Germany to expand its bilateral relations with China to such an extent that its success ends up alienating other EU member states." The government in Berlin, says Bersick, should rethink its "sino-centered approach" and diversify its interests. Are China and Germany entering into a partnership that's "too close for some," as the New York Times writes?

German Firms Expand in China

In fact, German companies are expanding in China more than ever -- and this with Beijing's blessing. Chemical producer Lanxess has just broken ground on a new €235-million synthetic rubber plant in Changzhou, near Shanghai. But not all DAX-listed companies are entirely pleased with their Chinese operations. The new BASF numbers are reportedly disappointing, and the mood is somber at the company, where everyone is hoping that a new leadership in Beijing will bring greater transparency.

The liberals' greatest hope is Wang Yang, 57. The party chief for Guangdong Province is China's most interesting politician at the moment. He advocates increasingly opening up China's economy to private enterprise, and to do so he wants to "open the cages and replace the birds." He has included the typically American pursuit of happiness in the five-year plan for his province, and he has strayed from convention by mediating in citizens' protests in ways that favor the demonstrators. He is also willing to grant more freedoms to entrepreneurs. When asked whether this development could end the monopoly of the Communist Party one day, Wang, whose nickname is "Little Marshall," says nothing.

Even a reformer like Wang knows that anyone who sticks his neck out too far can jeopardize his own prospects of advancement. Wang differs markedly from Bo Xilai, the former party leader in the southwestern city of Chongqing, who had called for more government control and a revival of Marxism. At the party convention in November, Wang stands a chance of being elected to the Politburo Standing Committee, the group of the country's top nine leaders that will shape China's future. But Wang, who, ironically enough, was Bo's predecessor in Chongqing, could also fall victim to Bo's friends in the Communist Party, who want to deny his rival the chance to rise to the top out of revenge.


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