By Anthony Faiola, Washington Post, September 18, 2010
VERL, GERMANY—As Americans fret over high unemployment and the prospect of another recession, an economic renaissance is putting Germans back to work and propelling the economy at a pace not seen since the fall of the Berlin Wall.
Ask a German executive why, and you are likely to get the same one-word answer that slips like silk off Gunter Scheipermeier’s tongue: “China.”
Vilified in the United States as a great sucking sound on the American economy, China is courted here as a revered client. Fast-growing demand from Asia’s giant is helping to fuel the strong German recovery, and Germany now stands as proof that a rich nation can profit off China’s rise.
China passed the United States last year as the No. 1 overseas market for big-ticket German machinery, with Teutonic titans from Siemens to Volkswagen—which so far this year has sold 1.3 million cars in China, five times as many as it has in the United States—ramping up production and payrolls to fill Chinese orders.
More important, China is driving growth at smaller German manufacturing firms like Scheipermeier’s Nobilia that form the true backbone of Europe’s largest economy. A family-run company making modular kitchens in a half-mile-long factory, where free-roaming robots work alongside humans on the most advanced assembly line of its kind in the world, Nobilia is treating nouveau riche Chinese like Americans of the 1950s—when nothing said success such as a sparkling, modern kitchen.
At the same time, the company is aiding Germany’s domination in the surging Chinese market for imported household goods. Through alliances with other German companies, Nobilia is selling kitchens to the Chinese that fit standard European-size appliances, 24-inch-wide ovens, for example. These kitchens do not accommodate the larger ovens commonly made by U.S. manufacturers and built for American families cooking Thanksgiving turkeys and Sunday rib roasts.
Overdependence on China for exports growth, many here say, could hurt Germany as the economy there eventually cools. And German companies, like their American and Japanese counterparts, are facing increasingly sophisticated piracy threats from a nation where blackmarketeers can copy an entire BMW roadster or Mercedes sedan.
But with showrooms in 17 cities and sales surging 40 percent this year alone, Nobilia now sells more kitchens in China than all but two domestic Chinese manufacturers, with no American challengers in the top 10.
“China is vital to Germany’s future,” Scheipermeier said. If he has his way, he said, “Chinese duck will be cooked in kitchens more like those designed for German chickens than American turkeys.”
One thing is for sure: When it comes to building a healthy trading relationship with China, Germany is cooking America’s goose. U.S. exports to the world’s second-largest economy surged 25 percent in the second quarter of this year, but German sales to China grew twice as fast. Overall, German exports have jumped 17 percent this year, driven in large part by a 55 percent rise in China of imports. Although the United States still exports more to China in total dollar terms, adjusted for the size of their economies, Germany is now out-exporting the United States to China by a factor of three to one.
Last year, Germany’s trade volume with China was $115 billion, while the U.S. trade volume with China was more than $370 billion. Like most nations, Germany suffers a trade deficit with China—or the difference between what it sells and what it buys. But it is nowhere near as much in the red with Beijing as the United States. In fact, during one month this year—February—Germany even came within a narrow $1 billion of chalking up a trade surplus with China.
That is partly because of frugal German consumers, who unlike Americans eschew credit and save like mad.
As the Obama administration vows to fix America’s troubled trading relationships and build an economic recovery in part on the back of exports, business leaders such as Jeffery Immelt, chief executive of GE, are pointing to Germany as a model. The Germans have funded “business centers” to aid small- and medium-sized companies in tapping the Chinese market, using government money to support their Chamber of Commerce networks and boost trade. They have adopted a less confrontational approach to China on issues including China’s exchange rate and copyright infringements, focusing instead on sales.
In recent decades, as countries including the United States and Britain put greater emphasis on financial services and property values, the Germans have hyper-focused on the art of manufacturing. Even relatively small German companies have grown into global market leaders for the products Chinese want, from drilling equipment to optical mirrors to prefabricated kitchens. Exports now account for more than one-third of Germany’s national output, more than double the rate in the United States, with Germany’s $1.2 trillion in annual exports roughly equal to the entire gross national product of India.
In the aftermath of the financial crisis, Germany became the first major economy to exit the Great Recession. Unlike in the United States, the export-led recovery here is translating into jobs. In August, Germany’s unemployment rate stood near a two-year low of 7.6 percent, with some companies in Germany now complaining of a labor shortage and the need to loosen immigration rules. The U.S. unemployment rate is 9.6 percent.
“Why is Germany doing better than the U.S.? The answer is not so difficult,” said Hans-Jochen Beilke, chief executive of Ebm-Papst, the German ventilation company now dominating the Chinese market in refrigeration technology. “Our industrial base is simply much higher now than yours,” he said. “Look at the state of machinery manufacturing in your country. There are nearly no important American makers left anymore, and most of the ones you have now are German subsidiaries. And then, look at cars. Go ask the Chinese if they want to buy a BMW or a Ford.”
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