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The relationship that saw Germany provide China with the machines to power its economy helped the German economy recover rapidly after the financial crisis. But German business leaders say the model is no longer working as China turns from partner to rival.

Germany should see its gross domestic product shrink by between 5.8% and 7.1% this year according to German public- and private-sector economists—better than most other Western economies but much worse than China’s expected 2.5% growth.

While Germany’s exporters are benefiting from a recovery in international trade, they aren’t getting the lift from China that they did a decade ago. In July, German exports were up from June but still 11% lower from a year earlier. China’s exports have exceeded last year’s levels for two months.

This divergence, economists and German business leaders say, is partly the result of Beijing’s strategy to encourage manufacturers to produce more sophisticated machinery that is more competitive with high-end German capital goods that were previously unmatched.

For many German exporters, this doesn’t just mean that selling in China is becoming more difficult. It also means Chinese companies are popping up more as rivals elsewhere. One firm that is feeling the pain is Herrenknecht AG.

For 15 years after the turn of the century, the maker of high-end tunnel borers—multistory factories that lay wires and concrete as they dig into the earth—became a mainstay of infrastructure projects across Asia, snaking beneath metropolises from Beijing to Shanghai.

The family-owned company’s revenue rose almost sevenfold between 2000 and 2015, to around €1.3 billion—or the equivalent of about $1.5 billion—with up to a fifth made in China, creating thousands of jobs at its manufacturing facilities in southwest Germany.

Over the past four years, though, Herrenknecht’s annual sales have fallen by about 5%. China’s large construction firms have developed their own borers and don’t need to buy its machines, the company says. A major rival in the large-machine market, Ohio-based Robbins Co., recently merged with China’s Northern Heavy Industries Group.

“Chinese companies are ever more competitive in international markets, offering abnormally low prices,” said Achim Kuehn, a Herrenknecht spokesman. “It’s surprising for Europe how quickly they have come.”

This year could mark a tipping point in Germany’s relationship with China, its largest trading partner and a longtime focal point of its global diplomacy.

For almost two decades, China needed German industrial robots, factory equipment and vehicles to become the world’s foremost consumer goods manufacturer. German companies took double-digit sales growth to China for granted. For a few years early in the century, this helped Germany become the world’s largest exporter of goods, ahead of both China and the U.S. It also allowed Germany to hold on to its manufacturing jobs even as swaths of industry in the U.S. and elsewhere migrated to China.

Now, Chinese companies are supplying wind turbines in France, buses in Norway, power grids in Poland and advanced industrial machinery across the world. In Sweden’s capital, a Chinese group recently secured a contract to dig three tunnels for the Stockholm metro.

In key segments of advanced manufacturing, including infrastructure equipment, China has closed the gap with German firms, said Karl Haeusgen, chairman of HAWE Hydraulik SE, which says it has seen more competition from China for its hydraulic valves and pumps used in wind turbines and machines.

“China is not a developing country, not at all. It’s an established, top-notch manufacturing country,” Mr. Haeusgen said.

Because the government has managed to control the coronavirus’s spread and due to its policies to support the economy, Chinese exporters are now grabbing a larger share of global exports while other countries remain hamstrung by the pandemic.