It is the German chancellor's seventh official visit to China. Her trip is expected to last three days and will include a meeting of the China-Germany Economic and Trade Commission.
Merkel and Li spoke at a joint news conference on Monday, with Merkel taking the opportunity to address the recent arrest of a German intelligence officer accused of committing espionage at America's behest.
"If the allegations are true it would be a clear contradiction as to what I consider to be trusting co-operation between agencies and partners," Merkel said.
Li responded that "China and Germany, it can be said, are both victims of hacking attacks."
As Germany grapples with the most recent U.S. espionage scandal and the resulting increased public skepticism about transatlantic cooperation, China has positioned itself to deepen economic ties with Germany, its biggest trading partner in Europe.
One European businessman, commenting on China's outreach to Germany, told the Financial Times: "The message from China is we are happy to engage with you guys but not with the U.S."
The Chinese government announced Monday it has approved Germany's $13 billion investment into the country's stock markets.
The BBC, however, reports that all is not well in the economic relationship between China and Germany. Some German companies have accused Chinese businesses of engaging in corporate espionage through the appropriation of Germany technology.