China is a member of the World Trade Organisation (WTO), but does not currently have market economy status. This allows other members to apply anti-dumping measures against it, most notably on steel.
However, after December 2016 certain provisions in China's Protocol of Accession to the WTO will expire, and China believes it should now be granted the status.
The European Commission launched a consultation in February asking whether it is time to grant this, and change the EU's anti-dumping policies toward the country.
Merkel told a news conference in Beijing that she was confident a solution can be found, if China is prepared to allow a level playing field and allow foreign companies access to its own domestic markets, Deutsche Welle said.
"Germany has always presented itself as an open investment market," Merkel said, according to the news site. "We expect reciprocity also from the Chinese side."
It is important that the discussion does not become "emotionalised", Merkel said,
Chinese premier Li Keqiang told the same news conference that China does not want to produce or sell low-end steel, and is committed to phasing it out, Deutsche Welle said.
"China has already fulfilled its obligations on joining the WTO. What's needed now is for the other parties to fulfil the matching obligations they had promised," Li told the news conference.
China does not want a trade war "because this will benefit nobody", he said, according to Deutsche Welle.