Germany - the China of Europe?

Many Chinese companies see Germany as a springboard to Europe, and last year China was very active in mergers and acquisitions in Europe, with a particular focus on acquiring companies in Germany.

Despite initial scepticism in Germany about the Chinese acquisitions, they usually turn out to be a win-win situation. China is able to provide Germany with capital, access to Asian markets and economies of scale in production, while the German partner can provide expertise, technology, distribution and branding.

For example, in 2010 Jiangsu Jinsheng Holding acquired a 50-per-cent stake in a leading machine tools maker in Germany, EMAG Holding. Since then, the German company's business has grown by 30 per cent.

Since the global economic crisis in 2008 the relationship between Germany and China has grown in importance. Indeed, demand from China was a significant factor in Germany's economic resilience during the crisis. China is Germany's third-largest export market after France and the United States, with exports to China now accounting for almost 8 per cent of Germany's total. On China's side, Germany is its most important European partner, with many complementary factors between the Chinese and German economies. For example, Germany is strong in industries which China regards as strategically important, such as automobiles, renewable energy and advanced technology.

Germany is also helping China with vocational training - ensuring that German companies in China can obtain the skilled labour they need.

Some have even gone so far as to call Germany the China of Europe. The two countries are pragmatic and business-focused in their foreign policies, have strong economies and industrial bases, and they consistently maintain substantial trade surpluses. In reflection of the importance of the China-Germany relationship, German Chancellor Angela Merkel makes annual visits to China, as did her predecessor.

Cementing another important bond between the two countries, a new freight train link now extends from central China to Germany, connecting Asian markets with Eastern and Western Europe. This has been dubbed the Silk Railroad, and BMW, Audi and Volkswagen have been heavy users of the link as they transport auto parts produced in Germany to their assembly plants in China.

It is notable that the German-owned DHL has played an important role in this development and has become a global player in logistics, including rail, as has DB Schenker, which is owned by Deutsche Bahn, the German railways company. With rail-transport freight costing around one-third the price of shipping, the cooperative efforts of Germany and China in building up these new transport links, is beneficial not only to Germany and China but also to many other countries in Asia and Europe.

The largest China-German transaction so far has been last year's acquisition of the German concrete-pump maker Putzmeister Holding GmbH by China's Sany Heavy Industry. One of the characteristics of the merger was a decision to maintain the Putzmeister brand and management - while Sany would work to create a new and global market leader for concrete pumps. This is a good illustration of how new business alliances between Germany and China can make the most of the strengths on each side.

Aside from major acquisitions, Germany's SME sector is also attractive to Chinese companies because of their technological edge and specialist knowledge. Meanwhile China is also assisting Germany to develop their new energy sector.

It will be interesting to watch the evolution of this "Made in China-Germany" partnership. Given the growing European interest in the upcoming formation of the Asean Economic Community, I am sure we will also see the China-Germany partnership extending its presence in the Southeast Asian region.

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