MERZ SAYS CHINA'S OVERCAPACITIES, TRADE SURPLUS, MUST BE ADDRESSED

German Chancellor Friedrich Merz has stated that China's industrial overcapacity and large trade surplus must be addressed, signaling that Berlin views these imbalances as a policy priority in its economic relationship with Beijing. The remark points to a transmission channel running through trade policy risk: persistent Chinese export volumes of surplus-priced goods, such as steel, autos, and solar components, can depress global producer prices and pressure domestic manufacturers in Europe, raising the probability of tariffs, anti-dumping measures, or other trade defenses. The most exposed assets are China-linked equities and the renminbi, along with European industrial and automotive names with heavy exposure to Chinese competition or to retaliation risk on China sales. A concrete catalyst to watch is China's monthly trade data release from customs, which will show whether export growth and the surplus continue to widen, and any European Commission decisions on pending trade-defense investigations.

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