As global pressure increases, German Chancellor Merz travels to China in search of opportunities

The German Chancellor Friedrich Merz is visiting China this week. He is the latest European leader to seek a reset of relations with Beijing following a year which exposed the 'crumbling' of their alliance with?the United States. The collapse of their alliance with the United States was exposed in a year that revealed vulnerabilities within their supply chains.

Merz is leading a delegation that includes some of Germany's top business leaders. This includes the heads of Volkswagen, BMW, and Mercedes-Benz.

Their companies, along with their European counterparts, have been hit twice by the suffocating Chinese electric vehicle manufacturers and U.S. Tariffs which have added billions of extra costs.

The visit will begin on Wednesday and be followed by a Washington trip next week. Merz had warned that Europe is now facing a world in which advanced technology, raw material and manufacturing supply chains are weapons in a 'new era of great-power rivalry.

TRADE PATTERNS CHANGING

Germany's biggest trade partner in the last five years was China. German manufacturers are embedded into China's economic system for decades. However, trade patterns have changed dramatically over the last five years.

Chinese exporters have reversed years' worth of German surpluses. They are helped by what German officials believe is an undervalued Yuan. This has left Europe's largest industrial power with a huge trade deficit with China in 2025 of nearly 90 billion euros (106 billion dollars).

Mikko Huotari is the executive director of Merics, a Berlin-based think tank.

This means that for many German companies, the business and economic outlook in China has declined.

SIGNING ECONOMIC ACCORDS IS REQUIRED

Merz is scheduled to meet with President Xi Jinping, Prime Minister Li Qiang, and sign a variety of agreements on a trip that also includes stops at a Mercedes Benz electric vehicle plant and a Siemens Energy facility.

China has made a concerted effort to portray itself as a "reliable global partner" in a geopolitical climate roiled by the unpredictable swings of U.S. president Donald Trump. China's large consumer market and the technological sophistication of its manufacturers makes it an essential partner for Western businesses.

The German industry association has called on the chancellor for action to deal with "overcapacity" and "competition distortion". It also asked him to consider export controls and reducing the amount of strategic commodities that are exported.

Last year, China, the country that produces 90% of all rare earths and rare-earth magnets in the world, tightened its export controls, causing shockwaves for?Western manufacturers. Chinese manufacturers are increasingly pushing foreign competitors off the domestic market.

Oliver Thoene, Mercedes-Benz China's boss, said this month: "We are seeing pricing pressure and new competitors in almost every segment. This has led to a significant shift in the previous structure of the market."

The EU's efforts to protect the local market against what it says are low-priced Chinese imports has not made things easier, for example by increasing tariffs on Chinese electric vehicles shipped back to Europe.

After years of lobbying by the steel industry against Asian competitors, the EU has also moved to protect struggling steelmakers through lowering import quotas. ($1 = 0,8488 euros). (Additional reporting by Christoph Steitz and Liz Lee; Editing by Alison Williams.)

(source: Reuters)