By Noah Barkin and Andreas Rinke
BERLIN (Reuters) - After a golden decade for economic ties between Germany and China, concerns are growing in Berlin over barriers to foreign firms in China, Beijing's more muscular foreign policy and its increased authoritarianism at home.
German Chancellor Angela Merkel heads to Beijing on Saturday for the ninth time since taking office amid growing pressure from industry and rights groups to confront the Chinese more forcefully.
The trip comes as she faces criticism at home for failing to speak out more strongly about rights violations in Turkey. It also comes in the midst of a furious debate over Chinese takeovers in Europe, with some politicians calling for tougher restrictions following a recent offer by home appliance maker Midea <000333.SZ> for German robotics firm Kuka (DE:KU2G).
"We have a proliferation and intensification of hidden and open conflicts in the German-Chinese relationship," said Sebastian Heilmann, head of the MERICS think tank in Berlin.
"We won't be able to avoid tough conflicts with China in the next months and years. This will be a difficult trip."
Merkel will be traveling to China with six of her ministers and a large industry delegation that is expected to include the CEOs of blue-chips like Volkswagen (DE:VOWG_p), BMW (DE:BMWG), Siemens (DE:SIEGn), ThyssenKrupp (DE:TKAG), Lufthansa (DE:LHAG) and Airbus (PA:AIR).
She will dine with Chinese Premier Li Keqiang on Sunday and President Xi Jinping on Monday. In between, she and Li will attend a meeting with business leaders at which German firms are expected to openly voice their frustrations with conditions in the Chinese market. On Tuesday, Merkel is due to travel to the northern "rust belt" city of Shenyang to visit a BMW plant.
More than any other European country, Germany has benefited from the rapid expansion of the Chinese economy over the past decade.
Between 2005 and 2014, German exports to China more than tripled to 74 billion euros. And German companies, notably the big carmakers, benefited from a surge in Chinese demand that offset weakness in their home European market.
In 2015, however, exports to China declined year-on-year for the first time in nearly two decades. And attention has shifted away from trade to the difficult conditions for German firms operating in a Chinese economy where growth has slowed.
"FRESH WAVE OF PESSIMISM"
At a briefing in Berlin on Friday, Merkel's top advisers expressed concerns about a wide range of developments in China, from a new security law that would place restrictions on non-governmental organizations (NGOs) to Beijing's actions in the South China Sea.
Topping the list, however, was the situation for German firms. At a time when Chinese companies are on an acquisition spree across Europe, foreign firms are limited to 50 percent stakes in joint ventures with their Chinese counterparts.
Chinese leaders heard the same message from U.S. Treasury Secretary Jack Lew this week. He said in Beijing that foreign businesses were beginning to question whether they were welcome in China.
"We want a level playing field, the same conditions for both sides," one senior Merkel adviser, who requested anonymity, told reporters, adding that Beijing's drive to be recognized this year by the European Commission as an economy controlled by the market, rather than the state, faced obstacles.
Markus Kerber, managing director of the BDI Federation of German Industries, told Reuters: "We have a difficult situation in China. We're in a transition phase."
The mood was summed up in the European Chamber of Commerce's annual business confidence survey released this week.
It spoke of a "fresh wave of pessimism" about an "increasingly hostile" business environment that was tilted in favor of domestic firms.
China has repeatedly pledged to increase market access for foreign firms and carry out market reforms in its effort to revamp its slowing economy. But foreign critics accuse it of not following through on its reform agenda and introducing new regulations that are restricting market access even further.
For example, Beijing's Made in China 2025 plan calls for a progressive increase in domestic components used in priority sectors such as advanced information technology and robotics to 70 percent by 2025 from a target of 40 percent by 2020.
The European Chamber's survey showed that less than a quarter of its members were convinced by China's pledged reform drive and that fewer than half currently planned to expand operations in the world's second-largest economy.