Though the Tibetan spiritual leader is lauded in much of the world as a figure of moral authority, Beijing demonizes the monk and claims he seeks to destroy China's sovereignty by pushing for independence for Tibet.
"Friends and partners sometimes do wrong things but as long as they admit their mistakes and correct their actions, we will always treat them as friends and partners," Chinese Premier Wen Jiabao said, when asked what he thought of Merkel's meeting with the Dalai Lama in September.
China routinely protests meetings between foreign governments and the Dalai Lama, and Wen said Beijing opposed European leaders receiving the 1989 Nobel Peace Prize laureate in an "official capacity."
The Dalai Lama says he wants "real autonomy" for Tibet, not independence. He is immensely popular in the Himalayan region, which China has ruled with a heavy hand since its communist-led forces invaded in 1951. He has lived with followers in exile in India since fleeing Chinese soldiers in Tibet in 1959.
German Foreign Minister Frank-Walter Steinmeier was quoted in the Passauer Neue Presse newspaper last month as saying that relations with China were in a "difficult phase" after Merkel's talks with the Dalai Lama.
Beijing canceled two sets of meetings with German officials, including talks on human rights that were scheduled for December.
Merkel's decision to receive the Dalai Lama underlined her willingness to address awkward issues in relations with Beijing. Her predecessor, Gerhard Schroeder, was accused by opponents of soft-pedaling human rights issues in the pursuit of economic ties.