Trade Unites and Divides Germany and China - New York Times

HANOVER, GERMANY â€" It is not easy being partners and rivals at the same time. That much was evident as the Chinese and German leaders talked trade on Monday, when they underscored common interests but also gently pressed one other to cede ground on trickier issues, like intellectual property rights and the export of technology to China.

More than 5,000 German companies are now active in China, many of them from this country’s machine-tool industry, which gathers annually at the trade fair here in Hanover to show off the latest innovations in any range of products: industrial-sized garage door-openers, detailed machine bits, devices for monitoring energy use.

The fair was formally opened on Monday by Chancellor Angela Merkel and Wen Jiabao, the prime minister of China, this year’s featured nation, with 500 exhibitors.

China was last featured at Hanover 25 years ago, when it was still considered an emerging economy. The country has now grown into world’s second largest economy, after the United States, and surpassed the United States to become the No. 1 foreign investor in Germany.

Trade between China and Germany, the world’s leading exporters, grew by 400 percent in the past decade and last year it reached €144 billion, or about $190 billion. Germany accounts for a third of China’s trade with the European Union, which has 27 member countries.

Mr. Wen told an economic forum on Monday that China remained very interested in investing in Germany and would continue to focus on increasing its trade with Europe’s leading economy over the next three years. “We want to reach a volume of trade in 2015 of $280 billion,” he said.

Both countries agree that an industrial base is required for their economies to maintain prosperity, as Ms. Merkel pointed out, while Mr. Wen emphasized the need for mutual trust. Yet differing approaches to basic principles of how to conduct international business have strained the partnership.

The importance of fair treatment for foreign companies that operate legally in one another’s countries and an emphasis on open markets “must be the basis of our cooperation,” Ms. Merkel said.

Iceland, which Mr. Wen toured on Friday, is the first Western European country to grant China market economy status. No E.U. member country, nor the United States, has done so, largely out of concern that China’s subsidies for its exporters would leave them at a disadvantage if it came to a trade dispute.

Mr. Wen pledged to work to protect intellectual rights, a constant sore spot with the Germans who fear that the Chinese will be able to take their innovations and produce them more cheaply. At the same time, he urged Germany for help in addressing barriers at the European level.

“China is happy to import more from Germany, and also hopes the German side will move the E.U. toward a loosening of export restrictions against China in the field of technology,” Mr. Wen said.

The partner-competitor duality of relations between Germany and China can partly be explained through the fact that the Chinese companies buy German machines and equipment that they use to produce goods that are then sold back to Germany, said Ralph Wiechers, chief economist of the German Engineering Federation.

The leaders also oversaw the signing of an agreement between Volkswagen and SAIC Motor to build a factory in China’s far west. The agreement foresees total investment of about €170 million and aims to produce as many as 50,000 vehicles a year starting in 2015 in Urumqi, the capital of the Xinjiang region.

In his opening remarks, Mr. Wen said “made in China” still stood for lower-quality goods in the international market. By contrast, “made in Germany” is associated with high quality, highly technological products, which the Chinese increasingly seek to emulate.

To that end, Mr. Wen said China remains devoted to its intent to “building a nation that is based on innovation” with the aim of “energetically supporting the transformation from ‘made in China’ to ‘created in China.”’

While Germany supports this transformation, it also adds pressure on German businesses firms to keep pace with Chinese competitors, or collaborate.

The solar industry serves as a prime example. While German companies once led the world in solar cell production, Chinese rivals have now squeezed them out of the market.

“We see that Chinese companies are becoming increasingly innovative,” Ms. Merkel warned. “That should serve as an incentive for German companies.”