Germany-China Relations Under Merz: What the First Official Visit to Beijing Means for Business

Germany-China relations have stabilized at the political level following Chancellor Merz’s February 2026 visit to Beijing, with both sides reaffirming their strategic partnership and committing to structured bilateral consultations. However, the structural economic tensions driving Germany’s record EUR 90 billion trade deficit with China remain unresolved, and European businesses should not mistake diplomatic normalization for improved market conditions.

German Chancellor Friedrich Merz completed his inaugural official visit to China on February 26, 2026, leading a senior delegation of 30 executives from firms including Volkswagen, BMW, Mercedes-Benz, Siemens, Bayer, and Adidas. The two-day trip, the first high-level bilateral visit of its kind in several years, resulted in a joint statement reaffirming the framework of the China-Germany “all-round strategic partnership” and signaled a measured reset in relations that had grown strained under Merz’s predecessor, Olaf Scholz.

For European businesses and investors, the visit carries implications beyond diplomatic optics. It offers a preview of the regulatory, trade, and investment environment likely to define the China-Europe relationshipover the medium term, one characterized by sustained engagement alongside structured risk management, rather than a decisive pivot in either direction.

See also: China-Germany Trade and Investment Outlook 2026: Strategic Shifts in Technology, Supply Chains

Overview and context

Merz met with President Xi Jinping and Premier Li Qiang at the Great Hall of the People on February 25, before the delegation moved to a joint symposium of the China-Germany Economic Advisory Committee attended by over 60 representatives from both countries’ business communities. The chancellor also visited Unitree, a robotics manufacturer, where a demonstration included a self-driving Mercedes-Benz vehicle, an intentional signal of the intersection between German and Chinese industrial ambitions in advanced manufacturing.

The tone of the visit differed meaningfully from recent precedent. Merz notably declined to use the term “systemic rival” to describe China, language that had drawn a sharp reaction from Beijing when deployed by Scholz, opting instead for a framing that acknowledged friction without foreclosing dialogue. Xi, for his part, called for the two countries to be “reliable partners that support each other,” “innovative partners featuring openness and mutual benefit,” and “cultural partners built on mutual understanding and friendship.”

A spokesperson for China’s foreign ministry described the visit as “fruitful,” stating that “practical cooperation is the biggest highlight in China-Germany relations.”

The state of the China-Germany economic relations

The economic backdrop to the visit reflects growing structural imbalances in the bilateral relationship. Germany’s trade deficit with China is projected to reach nearly EUR 90 billion (US$103.98 billion) in 2025, the largest on record, as imports from China continue to outpace German exports, according to estimates.

Despite these imbalances, China remains Germany’s most important trading partner. According to the German Federal Statistical Office (Destatis), bilateral trade between the two countries reached EUR 251.8 billion (US$290.90) in 2025, allowing China to reclaim the top position after the United States briefly overtook it in 2024.

Investment ties are equally substantial. By the end of 2024, German companies had accumulated roughly US$80 billion in foreign direct investment (FDI) in China, accounting for nearly 60 percent of total EU investment in the Chinese market, according to analysis by the Atlantic Council. Chinese cumulative investment in Germany, meanwhile, has reached approximately US$35 billion, reflecting the growing, though still asymmetrical, capital links between the two economies.

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The automotive sector illustrates the challenge most acutely. German carmakers (Volkswagen, BMW, and Mercedes-Benz among them) entered China through joint ventures in the 1980s, transferring technology in exchange for market access and contributing to the development of China’s modern automotive industry.

Supported by industrial policy including the Made in China 2025 initiative and substantial state subsidies, Chinese manufacturers now produce over 30 million vehicles annually, approximately 40 percent of which are new energy vehicles. Local brands, led by BYD, have captured around 70 percent of the domestic EV market, with BYD surpassing Volkswagen as China’s top-selling brand.

German car exports to China fell by roughly a third in 2025 compared to the prior year. Compared to their peak in 2022, the sector’s sales to China have declined more than 50 percent, according to the German Economic Institute (IW). Volkswagen and its partner SAIC are closing their joint plant in Nanjing, while Volkswagen has also halted production at its Dresden facility — its first full factory closure in nearly 90 years.

What was (and was not) agreed

The formal outcomes of the visit were modest in scope. The signed agreements concentrated on non-contentious areas, including climate cooperation, animal disease control, sports exchanges, and the facilitation of limited agricultural trade. The sole economically significant commitment was China’s agreement to purchase 120 Airbus aircraft, a deal negotiated at the European level rather than bilaterally.

No structural concessions were made on the issues that most concern German and European industry, such as market access asymmetries, Chinese state subsidies, overcapacity-driven export surges, and the conditions governing intellectual property and technology transfer. Merz himself acknowledged the “difficult issues” in the relationship, stating that China has “high capacities, some of which are now also posing a problem for Europe because they far exceed market demand.”

The chancellor announced plans to launch regular government-to-government consultations with China in 2027 to address these economic concerns in a structured bilateral format. This mechanism, modeled on the existing intergovernmental consultation framework, is intended to provide a durable channel for addressing trade grievances and investment conditions, though the commitment remains procedural rather than substantive at this stage.

On geopolitical matters, Merz addressed the ongoing war in Ukraine, noting that “signals from Beijing are taken very seriously in Moscow,” a pointed appeal for China to exert pressure toward a ceasefire.

The de-risking agenda: Where Germany now stands

The visit took place against the backdrop of an EU-wide shift toward economic de-risking, a strategy of reducing strategic vulnerabilities in critical sectors while preserving broader economic ties. Germany has been a central, if sometimes reluctant, driver of this agenda at the European level.

The 2023 China Strategy adopted by the Scholz government set out a framework for reducing critical dependencies while maintaining selective cooperation. Under Merz, Berlin has moved further toward the EU’s framing of China as simultaneously a partner, competitor, and systemic rival, though the new chancellor has been careful to avoid the last term in public exchanges with Chinese counterparts.

In practice, de-risking under the current German government is likely to concentrate on a defined set of sectors rather than representing a broad retrenchment. Areas of particular concern include rare earths and critical minerals, semiconductors, batteries, and critical infrastructure. In 2024, Berlin restricted Chinese vendors including Huawei and ZTE from parts of its 5G network under the EU’s 5G Toolbox, though Chinese equipment remains embedded in existing infrastructure, underscoring the complexity and cost of unwinding deep technological dependencies.

German industry is not uniform in its response. While chemicals and some machinery sectors have begun diversification strategies, a survey by the German Chamber of Commerce in China found that over 90 percent of members plan to maintain their China operations, with more than half seeking to expand. Automotive and industrial companies, in particular, have resisted deeper decoupling, and Germany voted against EU tariffs on Chinese electric vehicles (EVs) over concerns about market retaliation.

Implications for European businesses and investors

For European businesses operating in or considering entry into the Chinese market, the Merz visit offers several working conclusions.

The political relationship has stabilized, but the economics have not improved. The bilateral framework has been reset to a more functional register, regular consultations are planned, confrontational rhetoric has been dialed back, and both governments have signaled a preference for managed engagement over escalation. However, the structural conditions that have driven Germany’s record trade deficit and the erosion of German competitiveness in key sectors remain unchanged. Political stabilization should not be mistaken for economic normalization.

Market access remains asymmetric. German and European firms continue to operate in a Chinese market characterized by subsidized domestic competition, mandatory joint venture structures in certain sectors, and restrictions on data flows and procurement. The joint statement’s language affirming “candid and open dialogue” on these issues signals awareness rather than resolution. Businesses should plan on the basis that these conditions will persist through at least the 15th Five-Year Plan period (2026–2030).

The 15th Five-Year Plan sets the policy context. China’s current five-year plan, which will be formally released following the National People’s Congress meetings in March 2026, places heavy emphasis on technological self-reliance, AI integration, green transition, and the development of advanced manufacturing across industries including semiconductors, aerospace, and biomedicine. For European businesses, this creates both competitive pressure and potential partnership opportunities, particularly in green technology, smart manufacturing, and industrial digitalization, where complementarities remain significant.

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Supply chain exposure warrants systematic review. European companies with concentrated supplier relationships in China, particularly in rare earths, batteries, advanced components, and digital infrastructure, face increasing regulatory and geopolitical pressure to diversify. This is not only a German government priority but an EU-level requirement under the evolving economic security framework, including the Foreign Subsidies Regulation and related instruments.

Chinese investment in Europe will face tighter scrutiny. As the EU tightens its investment screening framework and individual member states upgrade their foreign investment review mechanisms, Chinese acquisitions and greenfield projects in strategic sectors will encounter a more demanding approval environment. The 2016 acquisition of German robotics firm Kuka by China’s Midea Group remains the benchmark case that drove the initial tightening of German foreign investment rules, and subsequent reviews have expanded the list of sensitive sectors.

Outlook

The Merz visit has achieved what it was realistically designed to achieve: a restoration of regular dialogue, a de-escalation of rhetoric, and a reaffirmation of the bilateral framework. It has not resolved (and was not expected to resolve) the structural economic tensions, technology competition, or geopolitical divergences that define the relationship.

Hong Kong is preparing to formulate its own five-year development blueprint aligned with China’s 15th Five-Year Plan (2026–2030). According to statements by Financial Secretary Paul Chan during discussions surrounding the 2026 Budget, the Hong Kong government intends to coordinate its economic strategy more closely with Beijing’s national development priorities. The initiative reflects the city’s role within China’s broader economic planning framework and its effort to position sectors such as technology and innovation as key drivers of future growth.

The trajectory of China-Germany relations over the next five years is likely to follow the model of “managed cooperation”, featuring sustained engagement in commercial areas of mutual benefit, combined with targeted restrictions in sectors deemed strategically sensitive. European businesses should expect continued access to China’s market in non-sensitive industries, increasing competition from subsidized Chinese firms in global markets, and a more demanding regulatory environment for high-technology trade and investment in both directions.

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The decisive variable will be whether Germany (and through it, the EU) can translate the political framework established during the Merz visit into concrete instruments that address trade imbalances and level competitive conditions. If the intergovernmental consultation mechanism announced for 2027 produces substantive outcomes on issues such as market access and overcapacity, the visit may prove a genuine inflection point. If it does not, the economic drift that has characterized the past several years is likely to continue.

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