Yuan’s Comeback Versus Euro Is a Welcome Gift for Merz’ Visit

As German Chancellor Friedrich Merz tours China with a host of his country’s business leaders, he may be heartened to see the Chinese yuan is at last starting to appreciate against the euro.

Even with gains versus the US dollar last year, China’s closely controlled currency slumped around 8% against the euro, its biggest decline since 2003, helping turbo-charge a flood of Chinese exports into Europe. Berlin has accused Chinese companies of enjoying over their German counterparts including a favorable exchange rate and state subsidies as the Asian nation’s with Europe widened to a record last year.

Now, China’s currency has gained over 1% versus the euro so far this year.

The German chancellor arrived in Beijing on Wednesday and held separate talks with President Xi Jinping and Premier Li Qiang. His visit also includes a trip to the technology hub Hangzhou Thursday.

“Merz will welcome a sustained appreciation in the yuan as that would address the competitive ‘distortions’ in his remarks before he left for China,” said Alex Loo , a strategist at TD Securities. “Some yuan strength this year could alleviate concerns that China is using foreign exchange to gain a competitive export advantage.”

While Merz patience and dialogue to overcome disagreements on trade and geopolitics at his meeting with Xi, the 70-year-old conservative has been critical of Beijing in the past. He has warned German executives against expanding investment in the world’s No. 2 economy before and said earlier this month that “China systematically exploits the dependencies of others.”

Running an unprecedented trade surplus with Europe, China is on a course with the continent. French President Emmanuel Macron has branded the trade imbalance with China “unbearable,” while European Commission President Ursula von der Leyen believes the bloc’s ties with China “have reached an inflection point.”

To be sure, the yuan’s sharp depreciation against the euro last year to a large extent reflected the single currency’s even more dramatic 13% surge versus the dollar.

Since 2026 began, the yuan has appreciated versus the dollar at a faster pace than the euro has, with Beijing showing greater for a stronger currency.

Some analysts expect the trend to extend the Chinese currency’s strength against the euro.

“We believe there is further yuan outperformance to come against the dollar and the euro,” said Paul Mackel , global head of FX research at HSBC Holdings Plc. “It’s increasingly an idiosyncratic story whereby gradual appreciation appears to be tolerated.”

HSBC’s forecast is for the euro/yuan pair to be at 7.97 at the end of this year, compared with around 8.10 currently.