Merkel and Li showed a united front on Iran and free trade -- two issues that have seen high-profile interventions by US President Donald Trump -- during their meeting at the opulent Great Hall of the People in Beijing.

Li warned that ending the agreement with Tehran "will not just impact Iran, but also have a negative impact on (the ability) to solve other hot international issues through peaceful negotiations".

He did not mention North Korea by name, but analysts have warned that Trump's withdrawal from the Iran deal dented Washington's negotiating credibility ahead of his scheduled meeting with North Korean leader Kim Jong Un next month.

The German leader also sounded the alarm about the economic impact on Europe of Trump's move to quit the Iran agreement.

Trump's decision to reimpose sanctions on Tehran, despite pleas from allies to maintain the deal, could hit European firms that have done business with Iran since the 2015 accord was signed.

If European companies pull out or shrink operations in Iran fearing US sanctions, it would "create an opportunity for businesses in other countries to step in and play a greater role", Merkel said.

Meanwhile, Li dismissed the idea that the Iran crisis paved the way for the internationalisation of the Chinese currency, amid speculation that demand for yuan-denominated oil futures would increase.

"The internationalisation of the yuan is a long-term process that is closely linked to the development of the Chinese economy," Li said.

On trade, Merkel welcomed China's moves to reduce automobile import tariffs and allow foreign carmakers to own a majority stake in joint ventures with Chinese partners.

The Chancellor drove home Berlin's demand for Beijing to ease barriers on foreign investment, saying the two countries would sign a memorandum of understanding to offer mutual access to each others' markets for autonomous vehicles.

"China and Germany are on the path of promoting multilateralism and bolstering free trade," said Merkel, who was accompanied by an industry delegation of 18 German executives.

Li hinted that a China-EU investment agreement, which has been in the works for years, might be signed during a bilateral meeting in July in Beijing.

"China's doors (for investment) will be opened even more," Li said.

Merkel was expected to take up the case of Liu Xia, widow of Nobel peace laureate Liu Xiaobo, who remains under house arrest without charges nearly a year after her husband died of cancer in custody.

"We have found a dialogue mechanism where difficult questions can be raised," she said.

Merkel will meet with President Xi Jinping later Thursday.