Export Champs China

Germany may have just won the handball world championship, but it looks like it's about to lose another kind of title.

For years, Germany has been able to call itself the world champion of exports (the service industry excluded -- the title in that category goes to the United States.) But new figures from the German Office of Foreign Trade show that China will assume the export throne in 2008.

The news that China, with its booming economy, is about to become the world's number one export nation has been met with caution not only by German business leaders, but managers and economists around the world.

"The fact that China exports so much isn't really the issue," said Eva Schwinghammer from the German Chamber of Commerce in Shanghai. "The real problem is that China exports much more than it imports. There's no balance, and that poses a risk to world market stability."

Export ball well in China's court

The balance of trade is clearly in China's favor. The goods China exports to Germany are worth 19 billion euros more than everything it imports from Germany. Textiles and electronics, like DVD players and computers, are the main drivers of China's trade success -- along with the fact that its currency, the yuan, isn't freely tradable.

But the head of the German Office of Foreign Trade, Gert Herx, pointed out that just because business is booming in China, it doesn't mean the Chinese are the ones profiting.

"About 60 percent of Chinese exports are funded by foreign investors," he says. "The products come from foreign companies that have built production facilities on Chinese soil, or set up joint ventures with Chinese companies. German companies in China aren't just serving the Chinese market; they're exporting back home and elsewhere. It's just a sign of globalization."

Back at the Chamber of Commerce in Shanghai, Eva Schwinghammer said it was only a matter of time before the forces of the world economy are felt in China.

Chinese firms stepping on European toes

"Look at labor costs," she said. "Wages are rising rapidly in China. It's common for skilled labor wages to double in a few years -- annual increases of 25 to 30 percent are the norm in Shanghai. Sooner or later the pressure will become too great. And China won't be considered a cheap location for companies looking to produce high quality goods, particularly in the heavy machinery sector, for example."

That's why the government in Beijing is encouraging Chinese businesses to shift from labor-intensive activities to technology-based areas.

It has created a program to boost research and development so they can compete in sectors normally dominated by European and US firms. It is also in the process of reassessing how the presence of foreign firms in China benefits the national economy. The first big change is expected this year with the abolition of tax breaks for foreign businesses in China.