Germany's Merz Navigates Delicate Balance in China Amidst Economic Reshuffle

Beijing, China – German Chancellor Friedrich Merz recently concluded a high-stakes visit to China, embarking on a diplomatic and economic tightrope walk aimed at resetting relations with Berlin's largest trading partner. Accompanied by a substantial delegation of German business leaders, Merz sought to deepen economic ties while concurrently addressing a burgeoning trade deficit and navigating complex geopolitical considerations, particularly in the shadow of strained transatlantic relations and a shifting global economic landscape. His mission: to pull off a precarious balancing act between economic necessity and strategic prudence.

Germany's economic relationship with China remains foundational, yet increasingly fraught. In 2025, China once again emerged as Germany's largest trading partner, with bilateral trade volumes reaching an impressive €253 billion, marking a 2.1% increase year-on-year. This robust exchange underscores the indispensable role the Chinese market plays for German industry, a reality keenly felt by major corporations like Volkswagen and BMW, whose executives were part of Merz's entourage. However, this deep economic embrace has fostered a significant imbalance. Germany's trade deficit with China has escalated dramatically, reaching a record €89 billion to €90 billion in 2025, nearly quadrupling since 2020. This widening gap, largely attributed by Merz to Chinese overcapacity, market-distorting subsidies, and an undervalued yuan, has led to growing concerns within German business circles about fair competition and the potential flooding of European markets with inexpensive goods. The German economy, still recovering from recent recessionary pressures, is grappling with declining exports and intensifying competition from Chinese products, alongside the tangible impact of industrial job losses attributed to imports from China.

Against this backdrop of enduring economic interdependence and mounting challenges, Chancellor Merz articulated a strategy focused on "balanced, reliable, regulated and fair" cooperation. His visit, his first to China as Chancellor, was characterized by an emphasis on open dialogue to address "very specific concerns" and to "reduce imbalances" within the bilateral relationship. Notably, Merz refrained from employing the term "systemic rival," a descriptor used by his predecessor that had reportedly caused irritation in Beijing. This linguistic calibration signaled a pragmatic approach, underscoring his belief that while China is a "partner, competitor, and systemic rival," "de-risking" Germany's economic exposure does not equate to "decoupling" entirely. Merz encouraged increased Chinese investment in Germany, signaling a two-way street for economic engagement. His itinerary also included engagements beyond traditional manufacturing, with a focus on exploring cooperation in emerging sectors such as artificial intelligence, biomedicine, and green energy, acknowledging China's growing technological prowess. This proactive stance aimed to secure new growth drivers for the German economy amidst global uncertainties.

Merz's diplomatic efforts in Beijing extended beyond economic redress to encompass sensitive geopolitical issues. A significant facet of his visit involved urging China to leverage its influence with Russia to bring an end to the ongoing conflict in Ukraine. He also pressed Beijing to prevent the supply of dual-use goods to Russia, signaling Germany's firm stance on the conflict. The timing of Merz's trip was also critical, occurring at a juncture marked by renewed U.S. tariff threats under former President Donald Trump, which have strained transatlantic relations and prompted European leaders, including Merz, to seek improved cooperation with China. China, in turn, sought to project an image of stability and reliability as an economic partner amidst global turbulence, particularly given Europe's concerns about supply chain vulnerabilities. Discussions also reportedly included China's export controls on rare earth elements, a critical issue for several German industries, including electric mobility and defense. Merz's engagements underscored the complexity of managing economic interests alongside broader foreign policy objectives, highlighting the interconnected nature of modern diplomacy.

The culmination of Merz's visit saw the signing of over ten agreements across diverse industries, ranging from automotive and energy to finance. Five intergovernmental agreements were formalized, covering areas such as climate change cooperation and the fight against animal diseases. A particularly notable outcome was China's commitment to purchase 120 additional aircraft from European manufacturer Airbus, an agreement Merz presented as tangible evidence of the value of such high-level diplomatic engagements. Chinese Premier Li Qiang conveyed Beijing's willingness to increase imports of high-quality German products and to address the legitimate demands of foreign-invested enterprises operating in China. However, not all observers viewed the outcomes as unequivocally successful. Analysts such as Philippe Le Corre of the Asia Society Policy Institute noted that the agreements were "narrowly targeted" and that the visit "did not exceed expectations" in fundamentally rebalancing the trade relationship. Despite the diplomatic overtures and specific agreements, the fundamental challenge of the bilateral trade imbalance persists, with some public opinion in Germany supporting a reduction in economic dependence on China, even at a potential economic cost.

Chancellor Merz's visit to China marked a strategic recalibration, signifying a return to a more pragmatic, business-focused diplomatic approach reminiscent of past German governments, yet undertaken against a backdrop of intensified economic rivalry and geopolitical friction. While he successfully fostered dialogue and secured some concrete business commitments, the ultimate efficacy of his "balancing act" remains to be fully assessed. The challenge for Germany lies in translating these engagements into a more equitable and sustainable long-term economic partnership, one that addresses the structural imbalances and competitive concerns while maintaining crucial economic ties. As Germany navigates its path in an increasingly fragmented global order, the delicate balance between economic opportunity and strategic autonomy in its relationship with China will continue to be a defining feature of its foreign policy.