German Chancellor Merz Signals Major Shift in Economic Relations with Beijing

German Chancellor Friedrich Merz signalled a major shift in Berlin’s economic relations with Beijing on Friday, saying the Chinese currency was undervalued by 30 per cent, well above the International Monetary Fund’s estimate of “about 16 per cent”.

Speaking in Brussels after a European Council summit, Merz said China was “flooding markets” through the use of “high subsidies”, adding that “subsidising overcapacities” along with a “currency that isn’t convertible freely … is not acceptable”.

Merz’s comments are some of his most forceful remarks on Beijing since becoming chancellor last year and address one of the major factors in the debate over industrial overcapacity.

In Europe, the yuan’s rate against the euro is seen as one of the major reasons for a surge in Chinese shipments, making Chinese goods cheaper for overseas buyers.

This, in turn, has led to a gaping trade deficit, much to the chagrin of European leaders, who are concerned that local manufacturers are in peril.

Merz pointed to the Plaza Accords as an example of how such matters could be addressed.