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Business

Germany and China Celebrate 30 Years of Ties

Oct. 11 marks the 30th anniversary of diplomatic relations between Germany and China. Today, Germany is China's largest European trading partner, with hundreds of firms doing business there -- from Beijing to Shenzhen.

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The only way is up: China is one of the fastest-growing markets for German companies.

1972 was a momentous year for the People's Republic of China. U.S. President Richard Nixon's springtime visit to Beijing opened the door for Washington's partners to develop relations with the Asian giant, which had been closed to the West for decades. Along with Japan and Australia, Germany officially established diplomatic links half a year later, on Oct. 11.

In the intervening years, Germany has advanced to become China's biggest European trading partner, as well as its biggest European investor. At times, the bilateral political dialogue has been strained, but these hiccups have been quickly overcome -- often thanks to the two countries' strong economic ties. The 3.9 billion euro annual direct investment made by German companies in China forms the hinge of the Sino-German relationship today.

The Chinese have long held German industry in high regard, even after World War II and the Cold War. During the 19th century, China imported its first trains, telegraph system and other technology products from German companies. Today, that tradition continues to flourish with, for example, the construction of the Transrapid magnetic-levitation train by Siemens and Thyssen-Krupps between Shanghai and its international airport. Though relations languished during the most intense Cold War years, the political climate changed dramatically beginning in the 1960s and especially after Nixon's visit.

From steel mills to Transrapids

"Thirty years ago, the first (German-made) steelworks was built under very adventurous conditions in the city of Wuhan," said Wolfgang Lingelsheim-Seibecke, a spokesman for the German Economics Ministry. "Automobile manufacturers and chemical giants like BASF and Bayer came soon after. In recent years, hi-tech companies working in the sectors of information technology, biotechnology and genetics have invested heavily in the country," Lingelsheim-Seilbecke said.

More than 1,500 German firms are currently doing business in China. And with an average of seven percent annual growth -- an exception in the international downward economic trend -- more companies would like to tap China's growing spending power and burgeoning consumer market.

With its recent entry into the World Trade Organization, China is now moving, albeit slowly, to open its markets even more to the West and lower trade tariffs and other barriers -- and that could be a boon for German businesses.

"Competition will increase significantly and countries that are here will have an advantage," said Lingelsheim-Seilbecke. German companies like manufacturer Siemens have been present in China since diplomatic and economic ties were reestablished in 1972. But a handful of companies have a much longer history of engagement with the country. Siemens first set up shop in China back in 1872, establishing itself with the brand name "Gateway to the West." Today, China is the company's third-largest business partner. The technology company Thyssen-Krupp has also been in business in China since 1874, and annual China sales for the company now surpass the billion euro mark.

Both companies, with their long history in China, are now working together on the prestigious Transrapid rail project, which is scheduled for completion in January 2003, after less than two years of construction.

A slow restoration of business ties

Though trade cooperation between China and Germany didn't begin to grow in earnest until after Nixon's visit, German companies struck their own deal with the Chinese government as far back as 1957.

To Washington's dismay, economic links between the countries at the time grew rapidly. So much so that the U.S. vehemently opposed a German company's plan in the late 1960s to construct a steel factory in China. The U.S. feared steel produced from the plant could be used to kill U.S. soldiers fighting in Vietnam.

But there was considerable hope for the Chinese market after 1972. Leader Deng Xiopeng's vast reforms sparked enthusiasm among German enterprises, though the excitement was dampened by the realization that China's economy was ruled by cycles of overheating and restrictions dictated by the state. Nonetheless, business relations flourished, with trade between Germany and China tripling within a decade.

With the exception of a brief chilling of relations between Germany and China after the bloody quashing of the student democracy movement on Tiananmen Square in 1989, relations continue to grow today.

Politics as a door opener

Against the backdrop of visits to China, German politicians often announce major business deals between German and Chinese companies. This close association between business and politics is inevitable, Lingeslheim-Seilbecke said, noting that many Chinese businesses are still controlled by the communist government.

"China's economy is now, just as before, very much managed by the government," he said. "That means it's important for German industry to maintain good contacts with the responsible authorities." Politicians, he said, are often there to lend a helping hand.

But even after companies get inside the door, they still face other problems. A lack of understanding of Chinese culture and business practices can often lead to misunderstandings or failed negotiations, said Zhou Songpo, director of the Institute for Strategic Management at the University of Beijing.

A further problem for foreign, as well as domestic, firms doing business in China is the issue of pirated products. Despite strenuous efforts on the part of the Chinese government to stamp out forgeries and pirated products, protected innovations from Western companies are still often stolen, said Jürgen Heraeuis, a German businessman from Hanau, who is an expert in German-Chinese trade.