TAICANG, China – German and Chinese flags fly along tree-lined avenues. Workers are building a mall and hotel project with the half-timbered architecture style most commonly found in places like Bavaria or the Black Forest. A nearby restaurant serves grilled Thuringian sausages, fried pork sausages and lots of sauerkraut.
And at the Erwin Gerber bakery near Taicang, an industrial town just over an hour’s drive northwest of Shanghai, hungry customers can buy sourdough bread or a pretzel made the way they are made in Baden-Württemberg.
“Everything you find in Germany,” said Gerber, “you will find it in my bakery.”
Taicang summarizes the deep ties between the second and fourth largest economies in the world. The Chinese city is so closely linked to the German industrial machine that some people call it “Little Swabia”, in honor of the German region that the owners of many of its factories call home.
But the relationship also raised concerns that Germany has become overly dependent on China. This could be a particularly thorny problem for President Biden, who has made Beijing’s isolation on trade and geopolitical issues an important part of his overall strategy for China.
In December, Germany played a dominant role in negotiating an initial European Union investment protection agreement with China, despite objections from the new Biden government. Angela Merkel, the German chancellor, defended the deal as necessary to help European companies make more gains in China. She signaled in January that she does not want Germany to take sides in a new Cold War, telling the World Economic Forum: “I am not in favor of bloc formation”.
Its stance could have wide influence across Europe, given Germany’s position as its largest economy. “It is a state of fluctuation in terms of influence,” said Theresa Fallon, director of the Russia Europe Asia Study Center in Brussels.
Germany will be under increasing pressure in the coming months to choose a side. The deal with China still needs the approval of the European Parliament, where many are hostile to it.
It may also face pressure during the early June summit of the Group of 7 industrialized countries, which also includes France, Italy, the United States, Canada, Britain and Japan. Biden wants to strengthen that institution after Donald J. Trump, the former President, has given him little attention in the past four years.
Some European politicians, voters and human rights groups want Germany to take a tougher stance on human rights abuses. They cite China’s repression of the democracy movement in Hong Kong and the detention of up to one million members of predominantly Muslim ethnic minorities in Xinjiang, in the far west of China.
“We are not happy with the vague promises made in relation to the brutal repression of minorities,” said Reinhard Bütikofer, a member of the European Parliament and spokesman for the Green Party on foreign policy issues.
Even Germany’s leading business groups, while generally supporting Merkel’s position, called on China to respond to criticism.
“The human rights situation in Xinjiang, as well as the political situation in Hong Kong, damages our political and economic relations,” said Joachim Lang, director general of the powerful German Federation of Industries. “It must be in China’s own interest to provide greater clarity to the international community regarding local conditions and respond to allegations.”
China rejects criticism as interference in its internal affairs. European companies in China said they avoid using forced labor in Xinjiang.
Germany benefited from its ties to China, especially during the pandemic. China has overtaken the United States as Germany’s largest trading partner and has become the main market for many of its companies. Mercedes-Benz sold three times as many cars in China last year as it did in the United States.
However, some in Germany fear that the Chinese boom is coming to an end. China has stepped up its efforts to compete with German companies on precision machines or acquire them immediately. Executives at some German companies in Taicang said that the local managers they trained went out to train competitors.
German factories produce the precision machines that many Chinese manufacturers need to keep running. If Beijing succeeds in its offer of industrial self-sufficiency, warned a recent study by the Bertelsmann Foundation, China will no longer need them.
“It will no longer be a win-win situation,” said Ulrich Ackermann, director of external market for the Mechanical Engineering Industry Association, known for its German initials, VDMA, which funded the foundation’s study.
Most German companies in Taicang are small and medium-sized manufacturers that make niche industrial products, or the “Mittelstand” companies that support the German economy.
Germany’s first roots in Taicang were planted in 1985, when Hans-Jochem Steim, the managing director of a German wire springs manufacturer, went looking for a place to build a factory. Taicang, little more than a cluster of villages at the time, was a short drive north of Shanghai’s only commercial airport at the time and had a small-town atmosphere that reminded it of the company’s hometown, Schramberg, Swabia. .
Kern-Liebers, the maker of Steim, was the first of what turned out to be more than 350 German companies that established operations in Taicang, attracted by cheap real estate, a nearby airport and cooperative local employees. Mr. Steim encouraged his longtime suppliers to follow him.
“The first 20 German investors were more or less his friends,” said Richard Zhang, chief executive of Kern-Liebers’ operations in China.
Among the first investors was TOX Pressotechnik, which manufactures machines that join metal parts and are used to build car roofs, chassis and other components. Although large companies tend to settle in large population centers, “as a small company, you went to Taicang,” said Susanne Eberhardt, a member of the family that owns the company, based in Weingarten, in southern Germany.
The Chinese employees hired by TOX had a good relationship with the Germans. “The Chinese people exuded energy and optimism,” said Eberhardt. “You could feel that China was on the verge of a breakthrough, and they were incredibly proud to be a part of it.”
The Germans taught the local managers so well that, today, Taicang is all German, except for a large number of Germans. The vast majority of Mr. Gerber’s bakery customers are Chinese. The few expatriates usually live in Shanghai, which has a German school for their children.
German companies in Taicang were generally not large enough to attract much attention from the central government. Several said they did not feel pressure to share technology and trade secrets, a common complaint from large foreign investors.
“If you don’t touch on politically sensitive issues, it’s a very friendly environment,” said Matthias Müller, the managing director of the German Center for Industry and Trade in Taicang.
German investors helped to transform Taicang into a city with almost a million inhabitants. Workers who once rode bicycles now drive cars.
In 2004, when Klaus Gerlach was setting up operations for Krones, a German maker of machinery for the food and beverage industry, “we had a car in the parking lot and it was mine,” he said. “Today, the parking lot is full of cars.”
The downside of this growth is that Taicang, like industrial cities across China, is suffering from a shortage of workers. Workers tend to quit their jobs frequently, unless they receive wage increases and other benefits.
Kern-Liebers defined 5,000 renminbi, or $ 775, as the monthly payment for entry-level workers, an increase of more than sixteen times over the 1990s. “Back then,” said Zhang, “we were paying 300 and everyone was very happy. Now we pay 5,000 and they are not so happy. “
German companies say they still see room for growth in China. They say the government is not targeting them, because they produce in China and employ predominantly Chinese.
Vanessa Hellwing, chief financial officer at Chiron, a maker of machine tools used by automakers and the aerospace industry that has a factory in Taicang, said the rapid recovery of the Chinese economy from the pandemic helped offset the drop in sales elsewhere.
Europe remains Chiron’s largest market, said Hellwing, but “the most important growth market is China”.
Keith Bradsher reported from Taicang, and Jack Ewing Frankfurt.