“corporate governance services” to investment managers.

For $15,000 a year, plus other fees, HighWater would provide an employee to sit on the board of the financial vehicle that the fund manager was expected to launch to accept the wealthy family’s money, according to emails between the fund manager and a HighWater executive reviewed by The New York Times.

The fund manager also brought on Boris Onefater, who ran a small U.S. consulting firm, Constellation, as another board member. Mr. Onefater said in an interview that he couldn’t remember whose money the Cayman vehicle was managing. “You’re asking for ancient history,” he said. “I don’t recall Mr. Abramovich’s name coming up.”

The fund manager hired Mourant, an offshore law firm, to get the paperwork for the Cayman vehicle in order. The managing partner of Mourant did not respond to requests for comment.

He also hired GlobeOp Financial Services, which provides administration services to hedge funds, to ensure that the Cayman entity was complying with anti-money-laundering laws and wasn’t doing business with anyone who had been placed under U.S. government sanctions, according to a copy of the contract.

“We abide by all laws in all jurisdictions in which we do business,” said Emma Lowrey, a spokeswoman for SS&C Technologies, a financial technology company based in Windsor, Conn., that now owns GlobeOp.

John Lewis, a HighWater executive, said in an email to The Times that his firm received four referrals from Concord from 2011 to 2014 and hadn’t dealt with the firm since then.

“We were aware of no links to Russian money or Roman Abramovich,” Mr. Lewis said. He added that GlobeOp “did not identify anything unusual, high risk, or that there were any politically exposed persons with respect to any investors.”

The Cayman fund opened for business in July 2012 when $20 million arrived by wire transfer. The expectation was that tens of millions more would follow, although additional funds never showed up. The Cayman fund was run as an independent entity, using the same investment strategy — buying and selling exchange-traded funds — employed by the fund manager’s main U.S. hedge fund.

The $20 million was wired from an entity called Caythorpe Holdings, which was registered in the British Virgin Islands.

Documents accompanying the wire transfer showed that the money originated with Kathrein Privatbank in Vienna. It arrived in Grand Cayman after passing through another Austrian bank, Raiffeisen, and then JPMorgan. (JPMorgan was serving as a correspondent bank, essentially acting as an intermediary for banks with smaller international networks.)

A spokesman for Kathrein declined to comment. A spokeswoman for JPMorgan declined to comment. Representatives for Raiffeisen did not respond to requests for comment.

The fund manager noticed that some of the documentation was signed by a lawyer named Natalia Bychenkova. The Russian-sounding name led him to conclude that he was probably managing money for a Russian oligarch. But the fund manager wasn’t bothered, since GlobeOp had verified that Caythorpe was compliant with know-your-customer and anti-money-laundering rules and laws.

He didn’t know who controlled Caythorpe, and he didn’t ask.

In early 2014, after Russia invaded the Ukrainian region of Crimea, markets tanked. The fund manager made a bearish bet on the direction of the stock market, and his fund got crushed when stocks rallied.

The next year, Caythorpe withdrew its money from the Cayman fund. Caythorpe was liquidated in 2017.

The fund manager said he didn’t realize until this month that he had been investing money for Mr. Abramovich.

Susan C. Beachy and Kitty Bennett contributed research. Maureen Farrell contributed reporting.

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Battling for Bolivia’s Lithium That’s Vital to Electric Cars

“The amount of lithium we need in any of our climate goals is incredible,” said Anna Shpitsberg, the U.S. deputy assistant secretary of state for energy transformation. “Everyone is trying to build up their supply chains and think about how to be strategic.”

But Washington has little sway in Bolivia, whose leaders have long disagreed with the American approach to drug policy and Venezuela. That may explain why some energy executives do not think Bolivia is worth the risk.

“You’ve had 30 years’ worth of projects in Bolivia with almost nothing to show,” said Robert Mintak, chief executive of Standard Lithium, a publicly traded mining company based in Vancouver, British Columbia, referring to lithium development efforts dating back to 1990. “You have a landlocked country with no infrastructure, no work force, political risk, no intellectual property protection. So as a developer, I would choose someplace else that is safer.”

Mr. Egan sees the odds differently.

That Mr. Egan has gotten this far is a marvel. He learned about Bolivian lithium only by chance when he and a friend crisscrossed South America as tourists in 2018.

When they got to the salt flats, a guide explained that they were standing on the world’s largest lithium reserve. “I thought, ‘I don’t know how I’m going to do this, but I need to be involved,’” Mr. Egan said.

He had tried his hand as a sports and music agent and ran a small investment fund at the time. He had invested in Tesla in 2013 at $9 a share; it now trades around $975. (He would not reveal how many shares he had bought and how many he still had.)

But he felt that he wasn’t achieving much. Before Mr. Egan traveled to South America, his father, Michael, the founder of Alamo Rent A Car, advised him to make two lists — of his five biggest passions and of the five industries he thought would grow fastest in the coming decades. Renewable energy was on both lists.

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Biden Finds Raising Corporate Tax Rates Easier Abroad Than at Home

ROME — President Biden and other world leaders endorsed a landmark global agreement on Saturday that seeks to block large corporations from shifting profits and jobs across borders to avoid taxes, a showcase win for a president who has found raising corporate tax rates an easier sell with other countries than with his own party in Congress.

The announcement in the opening session of the Group of 20 summit marked the world’s most aggressive attempt yet to stop opportunistic companies like Apple and Bristol Myers Squibb from sheltering profits in so-called tax havens, where tax rates are low and corporations often maintain little physical presence beyond an official headquarters.

It is a deal years in the making, which was pushed over the line by the sustained efforts of Mr. Biden’s Treasury Department, even as the president’s plans to raise taxes in the United States for new social policy and climate change programs have fallen short of his promises.

The revenue expected from the international pact is now critical to Mr. Biden’s domestic agenda, an unexpected outcome for a president who has presented himself more as a deal maker at home rather than abroad.

end the global practice of profit-shifting, celebrated the international tax provisions this week and said they would be significant steps toward Mr. Biden’s vision of a global economy where companies invest, hire and book more profits in the United States.

But they also conceded that infighting among congressional Democrats had left Mr. Biden short of fulfilling his promise to make corporations pay their “fair share,” disappointing those who have pushed Mr. Biden to reverse lucrative tax cuts for businesses passed under Mr. Trump.

The framework omits a wide range of corporate tax increases that Mr. Biden campaigned on and pushed relentlessly in the first months of his presidency. He could not persuade 50 Senate Democrats to raise the corporate income tax rate to 28 percent from 21 percent, or even to a compromise 25 percent, or to eliminate incentives that allow some large firms — like fossil fuel producers — to reduce their tax bills.

“It’s a tiny, tiny, tiny, tiny, step,” Erica Payne, the president of a group called Patriotic Millionaires that has urged tax increases on corporations and the wealthy, said in a statement after Mr. Biden’s framework announcement on Friday. “But it’s a step.”

The Treasury Department said on Friday that even the additional enforcement money for the I.R.S. could still generate $400 billion in additional tax revenue over 10 years and said that was a “conservative” estimate.

An administration official said that the difficulty in rolling back the Trump tax cuts was the result of the fact that the Democrats are a big tent party ideologically with a very narrow majority in Congress, where a handful of moderates currently rule.

In Rome, Mr. Biden’s struggle to raise taxes more has not complicated the sealing of the international agreement. The move by the heads of state to commit to putting the deal in place by 2023 looms as the featured achievement of the summit, and Mr. Biden’s surest victory of a European swing that also includes a climate conference in Scotland next week.

Briefing reporters on Friday evening, a senior administration official, speaking on the condition of anonymity in order to preview the first day of the summit, said Biden aides were confident that world leaders were sophisticated and understood the nuances of American politics, including the challenges in passing Mr. Biden’s tax plans in Congress.

The official also said world leaders see the tax deal as reshaping the rules of the global economy.

The international tax agreement represented a significant achievement of economic diplomacy for Mr. Biden and Ms. Yellen, who dedicated much of her first year on the job to reviving negotiations that stalled during the Trump administration. To show that the United States was serious about a deal, she abandoned a provision that would have made it optional for American companies to pay new taxes to foreign countries and backed away from an initial demand for a global minimum tax of 21 percent.

For months, Ms. Yellen cajoled Ireland’s finance minister, Paschal Donohoe, to back the agreement, which would require Ireland to raise its 12.5 percent corporate tax rate — the centerpiece of its economic model to attract foreign investment. Ultimately, through a mix of pressure and pep talks, Ireland relented, removing a final obstacle that could have prevented the European Union from ratifying the agreement.

Some progressives in the United States say that Mr. Biden’s ability to follow through on his end of the bargain was a crucial piece of the framework spending bill.

“The international corporate reforms are the most important,” said Seth Hanlon, a senior fellow at the liberal Center for American Progress, who specializes in tax policy, “because they are linked to the broader multilateral effort to stop the corporate race to the bottom. It’s so important for Congress to act this year to give that effort momentum.”

Jim Tankersley reported from Rome, and Alan Rappeport from Washington.

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China’s Biggest ‘Bad Bank’ Tests Beijing’s Resolve on Financial Reform

HONG KONG — BlackRock gave it money. So did Goldman Sachs.

Foreign investors had good reason to trust Huarong, the sprawling Chinese financial conglomerate. Even as its executives showed a perilous appetite for risky borrowing and lending, the investors believed they could depend on Beijing to bail out the state-owned company if things ever got too dicey. That’s what China had always done.

Now some of those same foreign investors may need to think twice. Huarong is more than $40 billion in debt to foreign and domestic investors and shows signs of stumbling. The Chinese government, which has stayed quiet about a rescue, is in the early stages of planning a reorganization that will require foreign and Chinese bondholders alike to accept significant losses on their investments, according to two people familiar with the government’s plans.

Beijing has spent decades bailing out Chinese companies that got in over their heads, but in recent years has vowed to turn off the tap. While regulators have promised to make an example out of financial institutions that gorged on loans and waited for the government to foot the bill, Huarong is testing the limits of that resolve.

Unlike the handful of small banks and state-owned companies that have been allowed to fall apart, Huarong is a central part of China’s financial system and, some say, “too big to fail.” Its vulnerable status has left China’s leaders with a difficult choice: let it default and pierce investor faith in the government as a lender of last resort, or bail it out and undermine efforts to tame the ballooning debt threatening the wider economy.

highly unusual punishment that experts said was meant to send a message.

Mr. Lai confessed to accepting $277 million in bribes, telling state television that he had kept $30 million cash in safes around his apartment in Beijing, which he referred to as his “supermarket.”

Chinese regulators fear the corruption shown by Mr. Lai has become so embedded in Huarong’s business practice that assessing the full extent of its losses and the collateral damage from a possible default is a challenge.

“The scale and amount of money involved in Lai Xiaomin’s case is shocking,” said Li Xinran, a regulator at the Central Commission for Discipline Inspection. “This shows that the current situation of the fight against corruption in the financial sector is still serious and complex. The task of preventing and resolving financial risks is still very difficult.”

said that it would delay publishing its annual results in March. It delayed its annual results a second time last month, raising worries about the state of its financial health and its ability to repay investors.

Any situation where Huarong is unable to repay in full its investors would ripple through some of the world’s biggest and most high profile investment firms. As the international financial market grappled with that scenario, the bonds recently went into a tailspin.

This year alone, Huarong owes $3.4 billion to foreign investors. After it delayed releasing its annual results, the bonds sold for as little as 60 cents for every dollar. In Hong Kong, its stock was suspended.

It is already very late for a big corporate reorganization, said Larry Hu, head of the China economics desk at Macquarie Group. “Huarong has already become too big to fail,” he said. “It is no longer a fix to the problem, but the problem itself.”

The government’s latest plan, which has not yet been reported, is likely to roil China’s corporate market. Last month, the broader market for Chinese companies started to wobble as anxious investors began to consider a possible contagion effect.

Chinese companies owe nearly $500 billion in loans to foreign investors. A Huarong default could lead some international bondholders to sell their bonds in Chinese state-owned enterprises, and make it more difficult for Chinese companies to borrow from foreign investors, a critical source of funding.

Concerns about the company’s ability to raise fresh money prompted two ratings agency to put Huarong on a “watch” notice — a type of warning that means its debt could be downgraded, a move that would make its ability to borrow even more costly.

“There is no playbook for this,” said Logan Wright, director of China research at Rhodium Group, a consulting firm. China’s regulators are now faced with the challenge of following through with a promise to clean up the financial system while also preventing a possible meltdown, he said.

“You’re pitting Beijing’s new rhetoric that they are cracking down against the assumption that they will ensure the stability of the system,” he said.

The government is likely to inject some money into whatever reorganized company eventually emerges from Huarong’s difficulties, but it is not prepared to inject enough money to pay off all of the bonds, the two people familiar with the government’s plans said.

Even as the government crafts a plan to downsize Huarong, the company has sought to calm investors’ nerves, promising that it can pay its bills. Speaking to state media, Xu Yongli, vice president of Huarong, likened his firm to other critically important Chinese financial institutions.

“The government support received by Huarong is no different,” he said.

Alexandra Stevenson and Cao Li reported from Hong Kong and Keith Bradsher reported from Beijing.

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U.S. Imposes Stiff Sanctions on Russia, Blaming It for Major Hacking Operation

WASHINGTON — The Biden administration on Thursday announced tough new sanctions on Russia and formally blamed the country’s premier intelligence agency for the sophisticated hacking operation that breached American government agencies and the nation’s largest companies.

In the broadest effort yet to give more teeth to financial sanctions — which in the past have failed to deter Russian activity — the sanctions are aimed at choking off lending to the Russian government.

In an executive order, President Biden announced a series of additional steps — sanctions on 32 entities and individuals for disinformation efforts and for carrying out the Russian government’s interference in the 2020 presidential election. Ten Russian diplomats, most of them identified as intelligence operatives, were expelled from the Russian Embassy in Washington. The country also joined with European partners to sanction eight people and entities associated with Russia’s occupation in Crimea.

The announcement is the first time that the U.S. government had placed the blame for the “SolarWinds” hacking attack right at the Kremlin’s feet, saying it was masterminded by the SVR, one of the Russian intelligence agencies that was also involved in the hacking of the Democratic National Committee six years ago. The finding comports with the findings of private cybersecurity firms.

SolarWinds; to the C.I.A.’s assessment that Russia offered bounties to kill American troops in Afghanistan; and to Russia’s longstanding effort to interfere in U.S. elections on behalf of Donald J. Trump. The key to the sanctions’ effectiveness, officials concede, will be whether European and Asian allies go along with that ban, and whether the United States decides to seek to extend the sanctions by threatening to cut off financial institutions around the world that deal in those Russian bonds, much as it has enforced “secondary sanctions” against those who do business with Iran.

In a conversation with President Vladimir V. Putin on Tuesday, Mr. Biden warned that the United States was going to act to protect its interests, but also raised the prospect of a summit meeting between the two leaders. It is unclear whether Russia will now feel the need to retaliate for the sanctions and expulsions. American officials are already alarmed by a troop buildup along the border of Ukraine and Russian naval activity in the Black Sea.

And inside American intelligence agencies there have been warnings that the SolarWinds attack — which enabled the SVR to place “back doors” in the computer networks — could give Russia a pathway for malicious cyber activity against government agencies and corporations.

Jake Sullivan, Mr. Biden’s national security adviser, has often said that sanctions alone will not be sufficient, and said there would be “seen and unseen” actions against Russia. Mr. Biden, before his inauguration, suggested the United States would respond in kind to the hack, which seemed to suggest some kind of clandestine cyber response. But it may take weeks or months for any evidence that activity to come to light, if it ever does.

SolarWinds attack because that was the name of the Texas-based company whose network management software was subtlety altered by the SVR before the firms customers downloaded updated version. But the presidential statement alludes to the C.I.A.’s assessment that Russia offered bounties to kill American troops in Afghanistan and explicitly links the sanctions to Russia’s longstanding effort to interfere in U.S. elections on behalf of Donald J. Trump.

In the SolarWinds breach, Russian government hackers infected network-management software used by thousands of government entities and private firms in what officials believe was, at least in its opening stages, an intelligence-gathering mission.

The SVR, also known as the Russian Foreign Intelligence Service, is primarily known for espionage operations. The statement said American intelligence agencies have “high confidence in its assessment of attribution” of responsibility to Russia.

In an advisory, the United States described for private companies specific details about the software vulnerabilities that the Russian intelligence agencies used to hack into the systems of companies and governments. Most of those have been widely known since FireEye, a private security firm, first found evidence of the hack in December. Until FireEye’s discovery, the actions had been entirely missed by the U.S. government, largely because the attack was launched from inside the United States — where, as the Russians know well, American intelligence agencies are prohibited from operating.

Previous sanctions against Russia have been more narrowly drawn and have largely affected individuals. As such, the Kremlin has largely appeared to absorb or shrug off the penalties without changing its behavior.

trading in Moscow before the announcement, the ruble’s exchange rate to the dollar dropped about 1 percent, reflecting nervousness over how the sanctions would play out. The main stock index, Mosbirzhi, also fell just over 1 percent.

The fallout so far reflects years of Russian government policy to harden its financial defenses against sanctions and low oil prices by running budget surpluses and salting away billions of dollars in sovereign wealth funds.

Balanced budgets have been a core economic policy principle of Mr. Putin, who came to power more than 20 years ago during a post-Soviet debt crisis that he saw as humiliating for Russia and vowed not to repeat.

Still, analysts say strains from the past year of pandemic and the drop in the global price of oil, a major Russian export commodity, have left Russia more vulnerable to sanctions targeting sovereign debt. By the first quarter of this year, however, a recovery in oil prices had helped return the federal budget to surplus.

reported.

Michael D. Shear and David E. Sanger reported from Washington, Steven Erlanger from Brussels, and Andrew E. Kramer from Moscow.

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China’s New Rules Worry Foreign Banks and Companies

SHANGHAI — To defend against accusations by Washington and others that it doesn’t play fair on trade, Beijing could point to the banks. Chinese leaders have been steadily lowering the barriers they had erected around the country’s vast financial system, giving Wall Street and European lenders a greater shot at winning business in the world’s second-largest economy.

Now the walls are going up again.

New Chinese rules have sharply limited the ability of foreign banks to do business there, making them less competitive against local rivals, according to three people with knowledge of the directives. One set of rules enacted in December and January restricts how much money foreign banks can transfer into China from overseas. Another that took effect on Wednesday required many foreign banks to make fewer loans and sell off bonds and other investments, two of the people said.

The new rules have caused a stir among the global bank executives and foreign companies in China that depend on those lenders for money, the people said. Among other concerns, they worry that the rules could make foreign-owned businesses more dependent on China’s state-run banking system for the money they need to grow. That dependence could give Beijing another potential pressure point to use as it squares off against Washington and others over trade, human rights, geopolitics and other sticky issues.

Banks and trade groups have been reluctant to speak publicly for fear of triggering further regulatory measures. But in a January letter to China’s central bank that was reviewed by The New York Times, the European Union Chamber of Commerce in China raised concerns about the money transfer limits.

encouraged boycotts of foreign businesses like H&M, the Swedish retailer, and Nike, the American athletic brand, after they vowed not to use cotton made by forced labor in Xinjiang.

The reasons behind China’s new banking rules aren’t clear, though they appear to have little to do with the tense political environment. They seem to be aimed instead at stemming big, potentially disruptive flows of money into the country.

surpassed the United States last year by taking in $163 billion worth of direct investments in factories, office buildings, companies and other assets.

Big money flows into a country can also make its currency rise in value — and China appears to working hard to counter that.

China’s currency, the renminbi, rose sharply in value against the U.S. dollar in the second half of last year. In May, $1 was worth about 7.15 renminbi. By year’s end, $1 bought about 6.5 renminbi. That rise was bad news for China’s exporters because it made their goods less competitive overseas.

But since the Chinese government enacted its new banking rules, the currency has begun to weaken. It now stands at about 6.6 renminbi to the dollar.

The new rules alone aren’t likely significant enough to account for the sudden halt to the renminbi’s rise. But they join other moves made by the Chinese government in recent months that have made moving money into China slightly harder and moving it out slightly easier. Combined, they could put pressure on the renminbi to weaken.

“This has started since last October, and they are all on the same side,” said Michael Pettis, a finance professor at Peking University.

Outside factors have likely contributed to the renminbi’s shift, including the resurgence of the U.S. economy, which could lead investors to steer their money there instead.

Chinese officials have stressed in recent months that their country is open to foreign investment, particularly banking.

“The inflow of foreign capital is inevitable, but so far, the scale and speed are still within our control,” Guo Shuqing, the chairman of the China Banking and Insurance Regulatory Commission, which has worked closely with the central bank on the new policies, said during a news conference on March 2. “We continue to encourage foreign financial institutions to enter China for shared development.”

In an unsuccessful attempt to head off a trade war with the Trump administration, China gradually relaxed or removed limits on foreign banks, insurers and money management firms. Big banks responded by expanding their mainland operations, including Citigroup, Credit Suisse, Goldman Sachs, HSBC, J.P. Morgan Chase, Morgan Stanley and UBS.

The global financial environment has encouraged money flows into China. With near zero interest rates elsewhere, international banks borrowed cheaply abroad. Until the new rules kicked in, they could send that money to China and lend or invest it there, reaping higher returns.

The first of the new rules, issued in a memo to banks in December, appeared to be aimed at that trend. That rule limited the ability of global banks to raise money overseas and move it into China. The rule is being phased in through November but was written in a way that has already had a big effect on financial contracts involving bets on the renminbi’s direction, said the people familiar with the notice.

Another measure communicated directly by Chinese regulators to foreign banks three weeks ago concerned the size of bank balance sheets, two of the people said.

Concerned about the rapid growth of credit in the Chinese economy, regulators ordered domestic and foreign banks to limit their balance sheets by Wednesday night to show only slight growth from last year. Because China has recently loosened limits on foreign purchases of bonds, many foreign banks had been buying more bonds for sale to foreign customers, expanding their balance sheets.

The full impact of the new rules will depend on how long they stay in place. Eswar Prasad, a Cornell University economist, predicted that China would eventually resume opening up to foreign financial institutions.

“They don’t want to scare off foreign investors in the medium to long term,” he said.

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Why Biden’s China Policy Faces an Obstacle in Germany

TAICANG, China — German and Chinese flags flutter along tree-lined avenues. Workers are erecting a shopping-and-hotel project with the half-timbered style of architecture more typically found in places like Bavaria or the Black Forest. A nearby restaurant serves Thuringia grilled sausages, fried pork sausages and lots of sauerkraut.

And in Erwin Gerber’s bakery nearby in Taicang, an industrial city a little more than an hour’s drive northwest of Shanghai, hungry customers can buy a loaf of country sourdough bread or a pretzel baked the way they are made in Baden-Württemberg.

“Everything you find in Germany,” Mr. Gerber said, “you will find in my bakery.”

Taicang epitomizes the deep ties between the world’s second- and fourth-largest economies. The Chinese city is so tightly knit with Germany’s industrial machine that some people call it “Little Swabia,” after the German region that the owners of many of its factories call home.

an initial European Union investment protection deal with China, despite objections from the incoming Biden administration. Angela Merkel, the German chancellor, has defended the agreement as necessary to help European companies make further gains in China. She signaled in January that she does not want Germany to take sides in a new Cold War, telling the World Economic Forum, “I’m not in favor of the formation of blocs.”

Her stance could have broad sway throughout Europe, given Germany’s position as its largest economy. “It’s a swing state in terms of influence,” said Theresa Fallon, director of the Center for Russia Europe Asia Studies in Brussels.

Germany will be under growing pressure in the months ahead to pick a side. The deal with China still requires approval from the European Parliament, where many are hostile to it.

crackdown on the democracy movement in Hong Kong and its detention of as many as a million members of predominantly Muslim ethnic minorities in Xinjiang, in China’s far west.

“We are not happy about vague promises made in regard to the brutal suppression of the minorities,” said Reinhard Bütikofer, a member of the European Parliament who is the Green Party’s spokesman on foreign policy issues.

recent study by the Bertelsmann Foundation warned, China will no longer need them.

“It won’t be a win-win situation anymore,” said Ulrich Ackermann, director of foreign markets for the Mechanical Engineering Industry Association, known by its German initials, V.D.M.A., which financed the study by the foundation.

Most of the German companies in Taicang are small and midsize manufacturers that make niche industrial products, or the “Mittelstand” companies that underpin the German economy.

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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