Angela Merkel wrapped up her three-day visit to China yesterday -- her seventh visit to the country as German Chancellor. Merkel has made the trip to China almost once a year, following the example set by her predecessor Gerhard Schröder.
Business between the two export economies has boomed in recent years, with total trade reaching €140 billion in 2013, a size equivalent to China’s total trade with Britain, France and Italy combined.
The balance of trade between the two countries is fairly evenly split: Germany exports $US91bn to China and China exports $US99bn to Germany. In the first quarter of this year, German exports surged 9.8 per cent, according to trade organisation Germany Trade & Invest.
Merkel has assiduously stuck to a focus on trade with China following an early misstep in 2007 when she earned the chagrin of Beijing after meeting with Tibetan spiritual leader the Dalai Lama.
This latest trip was no different. On Monday, Merkel signed agreements with Chinese Premier Li Keqiang that included two new Volkswagen plants, a helicopter deal with Airbus, and a plan to expand the strategic partnership between Lufthansa and Air China.
The relationship has developed to such an extent that German ministers now enjoy a relationship with their Beijing counterparts that no other EU country does. The two countries hold what are essentially joint cabinet meetings, the next of which is scheduled for October in Berlin.
For the past 10 years, the formula has been that Germany gets access to China’s vast market in return for technological know-how. As Xi Jinping said in Berlin earlier this year, China needs the product quality that Germany offers, while Germany can depend on the fast development of the Chinese market.
Much of those quality products come out of Germany’s Mittelstand companies – small and medium-sized firms that are the backbone of their economy. Often family-owned, these companies are frequently world market leaders in their respective niche segments.
But while that formula has worked so far, there are signs the pendulum is swinging the other way. There are rising concerns that Chinese-German joint-ventures are haemorrhaging precious intellectual property to their Chinese competitors.
On the eve of Merkel’s visit, a German intelligence chief warned that German Mittelstand companies are easy prey.
"They often don't really know what their crown jewels are or what the other side is interested in," Hans-Georg Maassen, head of the BfV domestic intelligence agency told the Welt am Sonntag newspaper on Sunday.
"They are up against very powerful adversaries. The Chinese technical intelligence agency alone has over 100,000 employees."
Germany’s interior ministry believes up to 70 per cent of German companies are threatened or affected by cyber attacks. Companies like steelmaker ThyssenKrupp and defence giant EADS have been compromised by Chinese hackers in the past.
"The overwhelming number of attacks on government agencies that are detected in Germany stem from Chinese sources" Stefan Kaller, the head of Germany’s interior ministry said last year.
Given the situation, Chinese officials must not have believed their luck when news that a German intelligence employee may be spying on his own country for the United States took up much of Merkel and Li’s press conference in Beijing on Monday.
"If the reports are correct it would be a serious case," Merkel told reporters.
"If the allegations are true, it would be for me a clear contradiction as to what I consider to be trusting cooperation between agencies and partners."
Ironically, the US government is suspected of spying on the German parliamentary investigation tasked with investigating the large-scale snooping on Germany by the US National Security Agency (NSA).
A US official has told CBS News that the Obama administration will soon admit publicly to the spying and try to smooth things over with Merkel who is already angered by US tapping of her mobile phone.
Spying is a particularly sensitive matter in Germany given its history of surveillance from the Gestapo secret police and East Germany's Stasi.
When Merkel was asked about industrial espionage at Monday’s press conference she avoided pointing the finger.
"Germany is against that - regardless of where it comes from," she said.
"We have a duty as the state to protect our economy... We are for the protection of intellectual property."
At the same press conference, the Chinese premier insisted his government was not involved in any hacking.
“China and Germany, it can be said, are both victims of hacking attacks. The Chinese government resolutely opposes hacking attacks as well as the use of the internet to steal commercial secrets or intellectual property," he said.
The pressure on Merkel and Germany to come down hard on the Americans is so strong because of the weight of evidence available. But unless she wants to give away Germany’s economic advantage, she will need to come down hard on the Chinese too.
She might have to wait till there’s a Chinese Snowden.