Economic 'honeymoon' between Germany and China fades

Thu Mar 27, 2014 6:28pm EDT
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By Noah Barkin and Andreas Rinke

BERLIN (Reuters) - As Xi Jinping prepares to make the first trip to Germany by a Chinese president in eight years, lofty goals to boost trade between the world's top exporters look hopelessly out of reach, and German firms are beginning to rethink their aggressive push into China.

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 (VOWG.DE: Quote) 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 (BMWG.DE: Quote) sales, well above the 13 percent it makes in Germany.   Continued...

Chinese President Xi Jinping looks on during a visit at the UNESCO headquarters in Paris, March 27, 2014. REUTERS/Christian Hartmann