By Andreas Rinke, Liz Lee and Colleen Howe
BEIJING, Feb 25 (Reuters) - German Chancellor Friedrich Merz urged Chinese firms on Wednesday to step up investment in Germany but also called on Beijing to reduce market distortions as he began a visit aimed at resetting relations between the world's second- and third-largest economies.
On his first visit to China as Chancellor, Merz, who was accompanied by a large business delegation, told President Xi Jinping that he wanted to deepen economic ties with China, Germany's largest trading partner last year.
"There are challenges, which we should talk about today, but the framework in which we operate is exceptionally good and we have worked together very well over the past decades," he said.
Xi, who has sought to position China as a reliable partner in an increasingly unpredictable world, welcomed the comments from Merz, who faces a tough balancing act of redefining an economic relationship that is increasingly unfavourable to German interests .
"The more turbulent and intertwined the world becomes, the more China and Germany need to strengthen strategic communication and enhance strategic mutual trust," he said.
In an earlier meeting with Premier Li Qiang, Merz said there were "very specific concerns regarding our cooperation, which we want to improve and make fair."
Merz's comments reflect longstanding German concerns about what Berlin sees as an undervalued yuan, market-distorting subsidies and overcapacity among Chinese exporters that have built massive trade surpluses with Europe's largest economy. At the same time, his visit underlined the vital importance of China's huge consumer market and the technical sophistication of its all-conquering manufacturers.
"We want Chinese investment in Germany," Merz said at a business event attended by senior German and Chinese business leaders from the tech and auto sectors.
Li called on both sides to work together to safeguard multilateralism and free trade, in a comment seen as a reference to U.S. President Donald Trump's trade war.
"China and Germany, as two of the world's largest economies and major countries with important influence, should strengthen our confidence in cooperation, jointly safeguard multilateralism and free trade, and strive to build a more just and fair global governance system," Li said.
NO CONSEQUENTIAL DEALS SIGNEDDespite their calls for deeper engagement, the agreements Merz and Li formalised after their meeting were narrowly targeted and in industries peripheral to both economies.
The five documents signed covered continued efforts in climate change and green transition, cooperation in animal disease prevention and a poultry products protocol, as well as sports collaboration agreements for football and table tennis.
That paled in comparison with Canada and Britain, which respectively signed eight and 12 documents with China last month during visits by Canadian Prime Minister Mark Carney and British Prime Minister Keir Starmer.
Still, the business-focused latter half of Merz's visit could see more deals secured.
He is accompanied by a delegation of 30 firms including top carmakers such as Volkswagen and BMW which are acutely feeling the strain of Chinese competition - contributing to the growing trade imbalance that has led to calls for protectionist policies.
CHINA-EU TIES IN FOCUS
China is seeking to pitch itself as a reliable economic partner, as Europe struggles to address vulnerabilities in its supply chains and worries about growing dependence on China.
Engagement between Europe's largest economy and China could set the stage for EU-China relations this year.
China's market, once coveted by foreign businesses for its wide consumer base and rising spending power, has changed in recent years with a slowing economy capping consumer demand and manufacturing overcapacity increasingly pushing domestic firms to look for opportunities abroad.
In editorials ahead of the visit, Chinese state media emphasised the potential for EU-China cooperation to become a stabilising force while U.S. tariff policies upend global trade.
State-backed newspaper the Global Times said concerns about competition with China would be outweighed by the lure of China's massive market.
"Rhetoric such as 'systemic rival' and 'de-risking' has at times complicated Germany's China policy," it said in an early Wednesday editorial.
"Yet the enthusiasm and actions of the German business community speak louder than political slogans."
(Additional reporting by Colleen Howe, Xiuhao Chen, Yukun Zhang in Beijing; Editing by Michael Perry and Kim Coghill)
