Asian innovation

The pictures speak for themselves: Alibaba founder Jack Ma side by side with German Chancellor Angela Merkel (above right) at the opening of the annual CeBIT, the world's largest IT trade fair.

His message came across loud and clear. He'd like the Chinese IT industry to stand – in the foreseeable future - for quality and innovation in the same way that German companies such as Mercedes and Siemens do.

It's not an impossible goal, but it might take a while to reach. China is not only already the world's main production hub for electronics, it's also the world's most significant growth market. But that's why Germany's relationship with China is ambivalent, straddling both fear and euphoria.

Euphoria, because Germany is well aware of the potential of the world's most populous country. Think of all the goods it can sell there! China is a guarantor of Germany's prosperity. But Germany is also aghast at the speed of growth in China, and knows full well it will have to fire on all cylinders to keep up.

Partner today, competitor tomorrow

Merkel has found the right way of dealing with the issue. Rather than expressing resentment at any possible competitive disadvantage resulting from Chinese and indeed Indian growth, she maintains that Germany is looking forward to the competition. That's a bit of an overstatement. No CEO in the world welcomes increased competition. And the chancellor herself works very hard to keep down rivals within her own party.

But Merkel adheres to that old adage: Do as I say, not as I do - advising the business community to rise to the challenge in order to remain competitive.

The Chinese might be Germany's partners today, but they will undoubtedly be its rivals tomorrow.

For the time being, China is following in Germany's footsteps down the path of digitalization, ensuring lucrative deals for technology providers, such as Bosch and Siemens, in the process.

But the speed at which China is catching up with Germany should not be understimated. Chinese businesses have three important resources that boost their competitive edge: money, a vast domestic market and an increasingly well-qualified workforce.

Every year, millions of highly trained engineers, IT experts, mathematicians and physicists graduate from Chinese universities and join the labor market. Chinese research departments employ some 4 million people, and China spends $200 billion on its research departments, which is a lot more than western countries do. This year, for example, the German Ministry for Education and Research has earmarked just over 15 billion euros – which is 9 percent more than last year.

Growing competitiveness

Two decades ago, German companies exported goods to China and then began manufacturing in China. The tables have since been turned. China is securing a foothold in German markets with competitive goods. And the same rules apply in China that apply in Germany – it puts its own profit before the profits of its partners. Not because of managed economies, dictatorship or communism but because this is a global phenomenon. You won't find an ICE in France, nor a TGV in Germany. American cars don't dominate the American market because they're better than German ones. "Made in China" used to mean cheap and cheerful, but not any more.

Nowhere is this more apparent than in the Smartphone sector. Huawei, Xiaomi and ZTE are up-and-coming brands, selling 180 million Smartphones last year, ratcheting up the pressure on Apple and Samsung and each seeing revenues of $12 billion.

Internet companies such as Tencent, Baidu and Alibaba are also international players. Tencent is the biggest Internet company in China; Baidu is its leading search engine operator and Alibaba is now an online giant whose initial public offering in New York last fall now ranks as the world's biggest in history at $25 billion.

Germany needs more innovation

Alibaba CEO Jack Ma might make a confident impression but he's taking nothing for granted and continues to work on new visions for his sector. His latest innovation has already caused a splash at CeBIT where he demonstrated his Pay-With-Your-Face Technology and promptly stole the show.

Chinese businesses are investing heavily in automization and digitalization technology research – and getting the West a little hot under the collar. But the West isn't tied to China's apron strings yet. It is still a master of its own destiny. But it needs to be realistic about opportunities and risks and to reach the right conclusions. One is: it needs more innovation. It can't carry on as though it were business as usual.

DW columnist Frank Sieren has lived in Beijng for 20 years.