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China's goal to become an innovation hub is good news for Germany's Merck

Key Points
  • China's ambitious plan to become a global leader in innovation and technology could potentially be good news for German multinational company Merck KGaA
  • Its life science and performance materials businesses help Chinese companies become more competitive, Merck Chairman and CEO Stefan Oschmann told CNBC
Merck CEO on business conditions in China

China has an ambitious plan to become a global leader in innovation and technology, and that could potentially bode very well for German multinational company Merck KGaA.

The company is one of the leading names in science and technology and does business across three sectors: health care, life science and performance materials.

The latter two business units help to make Chinese companies more competitive, Merck KGaA Chairman and CEO Stefan Oschmann told CNBC on Thursday on the sidelines of the Fortune Global Forum in Guangzhou, China.

"For instance, we are working with Chinese start-ups or larger biotech companies in the manufacturing process and the research process," he said. "Or we're making materials for Chinese electronics manufacturers (and) display manufacturers."

As a result, Oschmann said, Merck KGaA is in a "very interesting place" in the rapidly developing Chinese market.

Earlier this year, industry watchers agreed that China was shedding its image as a country that copies ideas from the West to become a tech and innovation powerhouse. At least one expert said Chinese companies were increasingly innovating in more hardcore technological areas.

When asked if China was becoming stricter toward foreign companies operating within the mainland, Oschmann said he was seeing "a lot more assertiveness and that is only natural given the size of the market and the importance of China in the world economy."

He added that the Chinese government, and business partners, understand Merck's value as a partner in helping to upgrade their industries in areas such as biotechnology and electronics.

One common gripe many foreign companies have when it comes to doing business in China is around intellectual property theft. But recently, Beijing has cracked down on intellectual property rights violations including corporate espionage and counterfeiting of well-known brands.

Stefan Oschmann, deputy chief executive officer of Merck KGaA, at the pharmaceutical company's annual general meeting in Frankfurt on April 29, 2016
Martin Leissl | Bloomberg | Getty Images

"We see that China is becoming much more positive toward intellectual property protection," Oschmann said, adding that particularly was the case in the pharmaceutical sector. He added that, while China's IP legislation was "very, very good" in theory, the problem lies with enforcing it against those violating the laws.

"That's where the Chinese government needs to evolve the system. It must be more predictable. Companies must have a more predictable environment when it comes to enforcing IP," he said, adding that he thinks the state of affairs is moving in the right direction.

On another note, Oschmann addressed the potential sale of Merck's consumer health unit. Reuters reported late last week, citing sources, that Swiss food giant Nestle and private equity owners of German drug firm Stada were both preparing tentative bids for that business.

Oschmann said Merck's consumer health business is performing very well: "Last quarter, we had 11 percent topline growth," he said, adding that the dynamics of the market were changing rapidly.

"Size has become so important in consumer health and we believe we're not the best owner of that business going forward," he added. Oschmann said he expects that a deal could potentially be signed by the second quarter of next year, although closing an agreement would take a longer time due to regulatory approval process.