Friedrich Merz's Dilemma: Navigating Germany's Fragile Relationship with China

German Chancellor Friedrich Merz embarked on his first state visit to China on Wednesday, meeting with President Xi Jinping in a significant engagement that underscores Germany's intricate relationship with the Asian powerhouse. His visit marks a continuation of a trend where Western leaders, including French President Emmanuel Macron and UK Prime Minister Keir Starmer, have sought to strengthen ties with China, reflecting its rising global influence. For Germany, Merz's visit is especially crucial given the nation's growing dependence on China, reminiscent of its previous reliance on Russian gas prior to the Ukraine conflict. This economic intertwinement poses a formidable challenge for Germany as it contemplates distancing itself from China, which may prove to be painful and possibly unfeasible. Accompanying Chancellor Merz on this trip is a delegation of 30 entrepreneurs representing Germany's leading industries, as these state visits typically aim to bolster trade opportunities. His predecessors, Angela Merkel and Olaf Scholz, also frequently traveled to China with sizeable business contingents, capitalizing on what was once a mutually beneficial economic partnership. Historically, Germany has been characterized by a high-level export-oriented economy, with China serving as a pivotal market for its goods—including mid- to high-end vehicles from Volkswagen, luxury cars from Mercedes and BMW, industrial machinery, and advanced electronic equipment. This symbiotic relationship fueled the growth of Germany’s economy, allowing it to maintain a nearly balanced trade dynamic with China, occasionally even achieving a surplus. However, since 2020, this balance has begun to tilt. China has ramped up investments in advanced manufacturing sectors where Germany has traditionally excelled, with the Chinese government providing subsidies to local industries in direct competition with German firms. To compound the issue, the German industrial sector has struggled to adapt to the rapid changes within China’s market. A prime example of this is the automotive industry, where foreign manufacturers once held dominant positions. Volkswagen, which benefited significantly from the Chinese market, has experienced a drastic decline in its market share as local brands, notably BYD, rise to prominence. The shift has had dire economic repercussions for Germany. Once enjoying a balanced trade relationship, Germany now faces a staggering trade deficit with China that reached nearly 90 billion euros in 2025—an increase of 33 percent within just one year. Consequently, the relationship that once propelled Germany’s economy is now characterized by dependency, complicating Chancellor Merz’s efforts to negotiate favorable terms during his visit. Amidst this backdrop, the German automotive giant Volkswagen has halted production at one of its factories for the first time in history and is contemplating further closures. All told, approximately 10,000 jobs are being lost monthly across Germany's industrial sector, exacerbated by the intense competition from Chinese companies that benefit from substantial state support. Germany’s economic woes are exacerbated by its reliance on China for rare minerals—essential components for technology production. With China controlling about two-thirds of global supply and 90 percent of refining, any disruption in exports could spell disaster for German, as well as American, Japanese, and Italian manufacturers. In the face of these multifaceted challenges, Merz acknowledges that decoupling the German and Chinese economies might be detrimental to national interests. However, without significant concessions from Xi during this trip, Merz is left to seek temporary alleviations rather than resolute solutions to the ongoing crisis affecting German industry. In summary, Chancellor Merz's state visit to China embodies the intricate balancing act of maintaining crucial economic ties while confronting the harsh realities posed by increasing Chinese competition and monopolistic control over essentials. Related Sources: • Source 1 • Source 2