Germany’s first roots in Taicang were planted in 1985, when Hans-Jochem Steim, the managing director of a German manufacturer of wire springs, went looking for a place to build a factory. Taicang, little more than a collection of villages then, was a short drive north from Shanghai’s only commercial airport at the time and had a small-town atmosphere that reminded him of the company’s hometown, Schramberg in Swabia.

Kern-Liebers, Mr. Steim’s manufacturer, was the first of what turned out to be over 350 German companies that set up operations in Taicang, drawn by cheap real estate, a nearby airport and cooperative local officials. Mr. Steim encouraged his longtime suppliers to follow him.

“The first 20 German investors were more or less his friends,” said Richard Zhang, the chief executive of Kern-Liebers’s China operations.

Among those early investors was TOX Pressotechnik, which makes machines that join pieces of metal and are used to construct car roofs, chassis and other components. While big companies tended to set up in major population centers, “as a small company, you went to Taicang,” said Susanne Eberhardt, a member of the family that owns the company, which is based in Weingarten in southern Germany.

Chinese employees hired by TOX meshed well with the Germans. “The Chinese people exuded energy and optimism,” Ms. Eberhardt said. “You could feel that China was on the verge of a breakthrough, and they were unbelievably proud to be part of it.”

The Germans taught local managers so well that, these days, Taicang has everything German except a large number of Germans themselves. The vast majority of the customers at Mr. Gerber’s bakery are Chinese. The few expatriates tend to live in Shanghai, which has a German-language school for their children.

German companies in Taicang were usually not big enough to attract a lot of attention from the central government. Several said they did not feel pressure to share technology and trade secrets, a common complaint by larger foreign investors.

“If you don’t touch politically sensitive issues, it’s a very friendly environment,” said Matthias Müller, the managing director of the German Center for Industry and Trade in Taicang.

German investors helped transform Taicang into a city with almost one million people. Workers who once rode bicycles now drive cars.

In 2004, when Klaus Gerlach was setting up operations for Krones, a German maker of machinery for the food and beverage industry, “we had one car in the parking lot, and it was mine,” he said. “Today, the parking lot is full of cars.”

The downside of that growth is that Taicang, like factory towns all over China, is suffering from a shortage of blue-collar labor. Workers tend to job hop frequently unless they receive pay raises and other benefits.

Kern-Liebers has set 5,000 renminbi, or $775, as the monthly pay for entry-level workers, a more than sixteenfold increase from the 1990s. “At that time,” Mr. Zhang said, “we paid 300 and everyone was very happy. Now we pay 5,000 and they are not so happy.”

German companies say they still see room for growth in China. They say the government is not targeting them, because they produce in China and employ predominantly Chinese people.

Vanessa Hellwing, chief financial officer of Chiron, a maker of machine tools used by automakers and the aerospace industry that has a factory in Taicang, said the Chinese economy’s fast recovery from the pandemic had helped compensate for declining sales elsewhere.

Europe remains Chiron’s biggest market, Ms. Hellwing said, but “the most important growth market is China.”

Keith Bradsher reported from Taicang, and Jack Ewing from Frankfurt.

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