Germany's secret to staving off the eurocrisis? Manufacturing.

"It took a long time for us to face up to the fact we had to do something," says Hans-Joachim Hass, head of economic policy at the Federation of German Industries (BDI) in Berlin. "It was painful and unpopular, and Schröder lost the elections [in 2005, to Angela Merkel,] as result. But we can see today it was the only way to go."

Rob Atkinson, president of the Information Technology and Innovation Foundation, a leading think tank in Washington, says the strong health of Germany’s Mittelstand results from Germany’s deeply-rooted "engineering culture."

Instead of looking at the industry as a 19th century relic, Germany has always supported its small industries, including by investing in research. "They have a national strategy," Mr. Atkinson says. And today, Germany spends 20 times as much as the United States in the industry-related research and development of small and mid-sized companies. 

"There's a widespread ideology among [other Western] elites that says 'we're not stuck in the old economy, we'll be the knowledge- and idea-based economy.' That's a complete illusion. And Germany never bought into that notion."

Partly because its companies are often family-owned and were sometimes created centuries ago, German firms have a greater ability to look at the longer term. That enables them to become specialists and capture "niche" markets. That has been the case in China, which has been buying German products "enormously," from machine tools to entire steel mills to cars for its middle class.

'Not content to buy them'

But although a tremendous source of growth for Germany's export-oriented economy, China is increasingly becoming a threat, experts agree. Hans-Joachim Hass of the German Federation of Industries says Germany's know-how and unique apprentice system currently gives it an edge over China.

"China and Germany now are in a symbiotic relation, but that won’t be the case for much longer," says Atkinson. "The Chinese are going after core German products, but they're not content to buy them: They also want to make them."

"But a lot of what Germany produces, China goes after in ways that are truly unfair," says Atkinson. "Right now, they’re not competing head-to-head, but as China shifts strategy, they will do so."

Unicor knows. Until three years ago, China was a promising market for Unicor. As Chinese cities were growing exponentially, they modernized their sewage systems, or built new ones. Sewage pipes were a hot commodity, and Unicor's business there thrived, says Mr. Petry. But that stopped abruptly when Unicor realized China had copied the company's manufacturing machines, he adds.

"They’re copying future technology they can’t make now," Petry says, "and then they will make it themselves, and then they will export it."

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