China's Premier Wen Jiabao wants trade with Germany to increase by 50 percent over the next three years, raising the prospects of both mouthwatering opportunity and competitive challenge to German producers.
Attending the Hanover trade fair, a major showcase for industrial technology, Wen said on Monday that China and Germany, the world's two biggest exporters, could boost their bilateral trade to $280 billion by 2015 but they must also improve market access and combat protectionism.
While welcoming the opportunities China's 1.3 billion-strong market provides, some Germans expressed concern that as the emerging Asian giant moves up the value chain, its output would pose a growing threat to Germany's high-quality exports.
Trade between China and Germany totalled $190 billion, or 144 billion euros, in 2011. Germany accounts for about a third of China's total trade with the 27-nation European Union.
China's advantages of a vast market and rich labour resources, if combined with Germany's advantages of sophisticated technology and managerial expertise, will make both sides more competitive, Wen told the Germany-China business forum.
We should take practical steps to promote investment and remove investment barriers. We welcome more German enterprises in China's high and new tech sectors, the service sector and in China's central and western regions, he said.
Later, Wen attended the signing of a deal with Volkswagen
Underlining the burgeoning trade ties, about 500 Chinese companies were represented at the Hanover fair, accounting for about a tenth of the total in attendance.
CRACKING CHINESE MARKET
China had a trade surplus of 14.5 billion euros with Germany last year, but German firms have proven much more successful than their European peers in entering the Chinese market.
Nearly 7 percent of German exports went to China last year, up from just 2 percent a decade ago. In France, exports to China make up just 4 percent of the total.
Without the dynamic expansion in exports to China, according to the calculations of Italian bank UniCredit, growth in German GDP would have been about 0.5 percentage points lower than the 3 percent reported last year.
Welcoming Wen to Hanover on Sunday, German Chancellor Angela Merkel praised the huge stimulus package China introduced during the 2008-09 global financial crisis, saying it contributed to Germany's own strong export-led recovery.
It is only a matter of time before China becomes more important for German firms than the United States, said Andreas Rees, chief German economist at UniCredit in Munich.
Germany produces the high-quality machinery and equipment that Chinese companies need to manufacture their goods, many of which end up back in Germany. China is a giant market for German luxury cars and state-of-the-art machinery, while Chinese exports to Germany include textiles, electrical goods and toys.
But the speed and scale of China's rise - compared by some academics to Germany's own industrialisation in the decades before World War One - has also stirred unease among Germans.
Chinese manufacturers may become more and more competitive and become more challenging for German companies, said Thomas Schrader, managing director of Air Handling Technology.
Another source of concern in some quarters is China's burgeoning interest in Germany's 'Mittelstand', the small and medium-sized companies, many family owned, that form the backbone of the country's economy.
One recent example was the purchase of concrete pump maker Putzmeister by Sany Heavy Industry <600031.SS>, China's largest construction company, for 360 million euros ($472 million).
Merkel, who led a large business delegation to Beijing in February, said China's economic advance showed Germany could not rest on its laurels.
(Fair competition) must be the basis of our cooperation, she said on Monday at the forum attended by Wen.
Some German firms complain about the lack of a level playing field in trade - including state support for Chinese exporters - and about intellectual property theft and other legal issues.
Wen pledged to uphold intellectual property rights and the voluntary principle of technological transfers.
Merkel said China would increasingly come to share Western concerns over intellectual property as its own firms engaged more in research and development and became more innovative.
Heinz Zimmer, head of the Association for Electrical, Electronic and Information Technologies (VDE), said China was catching up in the area of industrial innovation and would take the leading position in some sectors by the end of the decade.
Chinese firms, with strong official approval, have been steadily increasing their presence in Germany and elsewhere in Europe, taking advantage of the euro zone debt crisis - which has hammered European stocks - to snap up bargains.
We are encouraging companies to go abroad, said Huang Fang, an official from the Hunan branch of a Chinese trade promotion body attending the Hanover fair.
The legal system in Germany is good, and the quality of the labour force is very high. We also look to good technology and management skills, even though labour costs are high, she said. ($1 = 0.7571 euros)
(Additional reporting by Noah Barkin and Jan C. Schwartz, writing by Gareth Jones; Editing by Will Waterman)