Monday, Jul 28, 2014
Columns

Reiniers: Germany and China on the same page


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Five years ago Hernando Today published a piece I wrote about highly industrialized Germany, which was Europe’s biggest economy and then the world’s biggest exporter – yes, bigger than China, which by then had overtaken the United States’s exports.

Germany became known as “the workshop of the world” because of its unique “Mittelstand” family owned businesses which accounted for 70 percent of its jobs. These are the backbone of the German economy, which is known for the manufacture of complex quality engineered products, while in the United States, new jobs predominantly are in the service sector. Although the German word means “middle class,” it has come to mean small- to medium-sized companies which employ less than 250 workers.

Now get this: Germany is a country with a population of about 80 million. Analysts estimate Germany has an astonishing 3.7 million Mittelstand companies. China has a population of 1.4 billion people and the Chinese have nothing like Mittelstand companies, but have long admired and imported German-made products. When I first learned about these family owned enterprises, the German media already was reporting younger Germans were losing interest in continuing the family traditions.

The Chinese investment machine has taken notice. The China Review reported about Aichtal, a town of less than 10,000, becoming the headquarters for Sany, a massive Chinese construction company with more than 60,000 employees scattered across 150 countries. This small unnoticed town is the home of Putzmesiter, a German concrete pump manufacturer, which Sany agreed to buy in a $619 million deal. The Chinese agreed to no layoffs of Sany’s current workers until 2020.

Bloomberg has reported that since 2011 China has snapped up at least 21 Mittelstand companies, not just to “snatch advanced technologies for use back in China,” but “to acquire German talent as well.” As one analyst said, you don’t spend more than half a billion dollars on a company like Putzmsiter just to dismantle it.

China has the almost impossible challenge of changing itself from a largely rural country of peasant workers in the 1970s to a middle-class urbanized society which will need an untold number of manufacturing jobs. As the Economist noted, since economic reforms were launched, “China’s urban population had grown by the equivalent of the people in the United States plus three Britains.” These people will need to acquire valuable skills by collaborating with German Mittelstand companies. The Chinese – like the Germans – have set their sights on good-paying middle-class jobs, not just raising the minimum wage.

Not unlike the United States, China runs the risk of social unrest with a large population of under-skilled, unhappy, low-wage workers. Foreign investment should create opportunities for millions of Chinese – and not just in Germany. Forbes reported that China’s “foreign direct investment will grow from currently $500 billion to $1 trillion to $2 trillion by 2020, and a significant share of this will build global capabilities in innovation and technology.” (Investing in natural resources in Africa doesn’t move a country up the technological food chain.)

Underlying this shift in policy is the Chinese respect for what they believe to be a stable sophisticated country – a safe place for serious investments. The Chinese government doesn’t make snap decisions. The head researcher of a think tank for China’s overseas investments at China’s Social Science Academy selected Germany as the safest country in the world for China to invest in, based on its economic strength, [and] financial stability…”

(Is there a message here for this administration which is in a constant state of warfare with entrepreneurial corporate job creators?)

German Chancellor Angela Merkel is no pushover, and is emerging as the strongman of Europe. The Chinese government respects that. To show just how much the Chinese investment machine is interested in Germany and Europe generally, President Xi Jinping met with Merkel this year in Germany on the last leg of his European tour along with a delegation of 200 Chinese business leaders.

Xinhuanet.com, a Chinese website, reported that Xi proposed the building of a modern day “Silk Road” economic belt with Germany and China at opposite ends, “serving as the driving engines for economic growth … for Asia and Europe.” This is pretty heavy stuff for Chinese surfers of the web reading the local news.

The Wall Street Journal reported that “Germany is starting to attract the interest of Chinese students” because of its strength in subjects such as engineering.” (There are 30,000 students studying in Germany now.)

In a telling remark by a Chinese female entrepreneur who has traveled to Germany looking for business opportunities, she thinks Germany will be a good place to educate her 3-year-old daughter. She observed that, “Germans are conservative and can be a little rigid, but they actually make me feel safer as business partners.” (That isn’t exactly what you would label a rousing endorsement of the business practices of her own countrymen.)

And to think this all started with middle-class, family-owned, nose-to-the-grindstone Mittelstand companies.

John Reiniers is a retired lawyer and regular contributor who lives in Spring Hill. Email him at jbreiniers@yahoo.com.

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