Speaking after a European Council summit in Brussels, Mr Merz said China was flooding markets with subsidised goods and an undervalued currency, putting European manufacturers at risk. His remarks mark a sharp shift in Berlin's stance toward Beijing.

EU leaders mandated the European Commission to devise new tools to counter China's industrial excesses, including a diversification instrument to reduce supply chain dependencies. Commission president Ursula von der Leyen said companies had been too slow to de-risk.

Ms Von der Leyen pointed to a 45 per cent rise in Chinese shipments to Europe last year as unsustainable. She said new measures would be country-agnostic but designed to work faster than existing trade defences.

Mr Merz said the new tools would be presented at the October summit. He cited research showing the yuan was devalued by nearly one-third, posing a major challenge to German industry.

Spanish Prime Minister Pedro Sanchez emerged as the main dissenter, describing Beijing as a potential ally and urging caution. Diplomats said the Commission is expected to move quickly, with preparation already under way for instruments including supplier diversification and tariffs.

Belgian Prime Minister Bart De Wever called for a solidarity mechanism to shield member states from Chinese retaliation, with EU funds potentially allocated to affected businesses. The tools could be unveiled during September's State of the EU address.