Germany's Merz hails China ties as he seeks reset with Beijing

German Chancellor Friedrich Merz won a pledge by China to import more high-quality goods from Germany on Wednesday, as he visited Beijing aiming to reset relations that have been clouded by a yawning trade deficit with the world's second-largest economy.

On his first visit to China as Chancellor, Merz, who was accompanied by a large business delegation, told President Xi Jinping that he wanted to deepen economic ties with China, Germany's largest trading partner last year.

"There are challenges, which we should talk about today, but the framework in which we operate is exceptionally good and we have worked together very well over the past decades," he said.

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Xi welcomed the comments from Merz, who faces a tough balancing act of redefining an economic relationship that is increasingly unfavourable to German interests.

"The more turbulent and intertwined the world becomes, the more China and Germany need to strengthen strategic communication and enhance strategic mutual trust," he said.

China's massive trade surplus

Merz's visit follows his warning this month that the postwar international order underwritten by the US alliance with Europe was no more and that Europe must stand on its own in a world of great power rivalry.

In an earlier meeting with Premier Li Qiang, Merz said there were "very specific concerns regarding our cooperation, which we want to improve and make fair."

Merz's comments reflect longstanding German concerns about what Berlin sees as an undervalued yuan, market-distorting subsidies and overcapacity among Chinese exporters that have built massive trade surpluses with Europe's largest economy, amounting to 90 billion euros ($106 billion) last year.

He noted that the deficit had increased fourfold since 2020, and said this was largely due to overcapacity. "This dynamic is not healthy," he told reporters after the meetings.

German business has been deeply concerned by its dependence on strategic commodities from China including rare earths and basic chips after Beijing tightened export controls last year, sending shockwaves through Western manufacturers.

At the same time, Merz's visit underlined the vital importance of China's huge consumer market and the technical sophistication of its all-conquering manufacturers.

"We want Chinese investment in Germany," Merz said at a business event attended by senior German and Chinese business leaders from the tech and auto sectors.

Li told Merz that China wished to cooperate in areas like automobiles and chemicals as well as emerging fields including artificial intelligence and biomedicine.

He also said China was willing to import more high-quality products from Germany and encouraged Chinese companies to invest in Germany, according to a readout from the meeting released by Xinhua news agency.

"China will unswervingly expand high-level opening-up and actively address the reasonable demands of foreign-invested enterprises from Germany and other countries," he said.

‘Just and fair global governance’

Merz is accompanied by top executives from 30 German firms including top carmakers such as Volkswagen and BMW which are acutely feeling the strain of Chinese competition – contributing to the growing trade imbalance.

China has been seeking to present itself as a reliable economic partner, as Europe struggles with a new, less certain relationship with Washington and vulnerabilities in its supply chains exposed during a bout of trade turbulence last year.

China's market, once coveted by foreign businesses for its wide consumer base and rising spending power, has changed in recent years with a slowing economy capping consumer demand and manufacturing overcapacity increasingly pushing domestic firms to look for opportunities abroad.

Li called on both sides to work together to safeguard multilateralism and free trade, in a comment seen as a reference to US President Donald Trump's trade war and said they should "strive to build a more just and fair global governance system."

Despite their calls for deeper engagement, the agreements Merz and Li formalised after their meeting were narrowly targeted and in industries peripheral to both economies.

The five documents signed covered continued efforts in climate change and green transition, cooperation in animal disease prevention and a poultry products protocol, as well as sports collaboration agreements for football and table tennis.

That paled in comparison with Canada and Britain, which respectively signed eight and 12 documents with China last month during visits by Canadian Prime Minister Mark Carney and British Prime Minister Keir Starmer.