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's the latest European leader to seek a reset of relations with Beijing following a year which exposed the fragility in their supply chains and the collapse of their alliance with the U.S.

Merz is making his first trip to China as a?chancellor' and leads a delegation that includes some of Germany’s top business leaders. This includes the heads of carmakers 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.

Merz had warned that Europe is now facing a world in which advanced technology, raw material and manufacturing supply chain?have been weaponized in a new age of great power rivalry.

TRADE PATTERNS CHANGING

China was Germany's biggest trade partner in the last year. German manufacturers are embedded in China's economy for decades, but the trade pattern has changed dramatically over the past 5 years.

Chinese exporters have reversed years' worth of German surpluses. They are helped by a yuan that German officials believe is undervalued.

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.

Merz said, shortly before the takeoff, that both sides must?minimize risks due to ever-closer integration and unilateral dependence: "This is especially true for supply chains, technology and raw materials."

SIGNING ECONOMIC AGREEMENTS IS REQUIRED

Merz is scheduled to meet with President Xi Jinping, Premier Li Qiang, and sign a variety of agreements on the occasion of 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 position itself as a reliable partner in an uncertain geopolitical climate dominated by the unpredictable actions of U.S. president Donald Trump. China's large consumer market and the technical sophistication of its producers make it an essential partner for Western businesses.

The environment has become increasingly difficult for them and the main German industry association called on the chancellor, to take action against "overcapacity and distortion of competition and export controls on strategically important commodities".

China, which produces over 90% of processed rare earths in the world, tightened its export controls last year, causing shockwaves for Western manufacturers. Chinese manufacturers are increasingly pushing foreign competitors off the domestic market.

Oliver Thoene, Mercedes-Benz China's boss, said that the "structure" of the market has changed dramatically.

TRADE TENSIONS RISE

The EU's efforts to protect their local market against what they say 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 decided to lower import quotas and raise tariffs in order to protect struggling companies.

Merz said that fair and transparent trading was a prerequisite for successful Sino German relations. He added that agreed trade rules must be adhered to.

Merz continued, "We want to also discuss how we can remedy the situations where systemic excess capacity, export restrictions and accessibility restrictions distort our competition and prevents us from utilizing the full potential of this partnership." ($1 = 0,8488 euros). (Additional reporting and editing by Christoph Steitz; Liz Lee, James Mackenzie, Alison Williams).

(source: Reuters)