* Chinese growth stimulates demand for German high-tech
* Chinese tech companies however increasingly competitive
* Germany should be less dependent on exports, analysts say
By Sarah Marsh
BERLIN, Jan 20 (Reuters) - China has likely overtaken Germany as the world's biggest exporter of goods but the boom in Chinese manufacturing that looks to have given it the crown will actually help German industry, at least in the medium term.
Many German exporters do not compete directly with the Chinese as they have undergone a comprehensive modernisation over the past two decades, moving away from consumer goods such as textiles towards high-tech industries.
There are signs that China may in the future catch up with and even overtake Germany on these sophisticated products.
But for now, the boom in China's manufacturing sector will raise demand for German plant machinery and high-end engineering goods, supporting a tentative, export-fuelled recovery in Europe's largest economy.
"It is very good for Germany if China grows through exports -- China has become an important market for the German economy, especially in engineering," said Marco Bargel at Postbank.
Germany, the world's biggest exporter of goods from 2003 to 2008, is heavily dependent on foreign trade for economic growth and it suffered heavily from a drop in global demand last year, when the economy shrank by a record 5 percent.
The Federal Statistics Office said last week China looked to have overtaken Germany in 2009 as the world's biggest exporter of goods, and policymakers say Germany's recovery is tentative.
Many German companies are now counting on demand from China, which is expected to return to double-digit economic growth in the fourth quarter of 2009 on strong exports.
"China is the only key market in which we saw exports grow in 2009, up over three percent in the first 10 months of 2009 in comparison to the successful year of 2008," said Oliver Wack of the German engineering industry association VDMA.
Government stimulus packages in Asia are boosting demand, and economists say there will be a greater need for investment there than in developed Western economies even long after the economic crisis is over.
"Emerging markets, especially in Asia, have a much better structural picture for public and also private indebtedness and there is enough room for growth in the coming years," said Alexander Koch at UniCredit. "That would of course profit export nations like Germany especially."
GROWING COMPETITION
While low labour costs and a weak currency pegged to the dollar give Chinese companies a competitive edge on the world market, they cannot yet rival the technical sophistication and quality of German specialist engineering firms.
"We don't produce in China as the Chinese attach a lot of importance to the label 'Made in Germany', as they know it guarantees good quality," said Frank Reichel, factory manager of NILES, a manufacturer of high precision machine tools.
"To create products of the same quality in China you would need to send German engineers, with the right know-how, over there, which wouldn't necessarily be any cheaper."
However, industry experts say the Chinese government is aggressively promoting research and innovation, and local companies are making headway in sectors such as renewable energy and the car industry.
"China is increasing its technological prowess and has caught up with Germany in some sectors," said Jens Nagel, an economist at the German BGA exporters' association.
"Competition is growing."
Karl Haeusgen, chief executive of HAWE Hydraulik, which saw sales grow 10 percent in China last year while total sales slumped 37 percent, said it was important not to underestimate local manufacturers.
"They are running at high speed and the difference is still big, but getting smaller, so we have to run fast as well."
Haeusgen, also head of the Bavarian machine and plant manufacturers' association, said Chinese companies were increasingly coming up with products comparable to German ones.
"Take windpower generators for example," he said.
"Today local Chinese manufacturers have a higher market share than importers, which is a completely different picture to that a few years ago."
MOVING AWAY FROM EXPORTS
Analysts say the title of world's biggest exporter of goods is in any case not as desirable as it may seem, implying in Germany's case an excessive dependency on exports and vulnerability to global shocks.
Germany should not seek to compete with Chinese companies on wage costs, they say, instead letting salaries rise progressively and creating fiscal incentives in order to boost domestic consumption.
"The crisis showed that the German economy was maybe too much dependent on exports," said Carsten Brzeski, economist at ING Financial Markets. "But losing the title does not mean the German model has changed and indeed the recovery of the German economy is again mainly based on exports."
Germany still easily beats China in export-per-capita terms, with just 82 million inhabitants versus China's 1.3 billion.
"It would be good for Germany to have a broader basis for growth, to be more independent of global developments," said Postbank's Bargel. "But we are talking about a process lasting many years -- it is impossible to quickly reorientate the economy away from foreign demand towards domestic consumption." (Editing by Stephen Nisbet)