Stralsund, located in the German state of Mecklenburg-Western Pomerania, is the place Merkel calls as political home.
Speaking at the plaque-unveiling ceremony, "I am pleased that there is such an institute now also available in my political home," said Merkel.
Stralsund Confucius Institute which is operating in collaboration with Stralsund University of Applied Sciences and Hefei University, identifies transmission and training of traditional Chinese medicine as its main characteristics.
In Germany, more and more people are interested in traditional Chinese medicine, and are trying to cure diseases by "combination of Chinese and Western medicine", Merkel said.
"Germany has a rich culture and traditions. We also know that China has a long history of five thousand years of civilization. Confucius Institute can contribute to promote communication and understanding between the two peoples," she added.
Chinese Ambassador to Germany Shi Mingde said that China and Germany have established a comprehensive strategic partnership.
Even though political, economic and trade relations are important, youth exchange and interaction between the two countries are equally important, or even more important.
"This is the best investment in the future," he said.
Given the turbulent developments in the world, China and Germany set an example for peace, stability and stable development for the whole world with their good cooperation, of which significance goes far beyond the bilateral framework, he added.
Xu Lin, Chief Executive of Confucius Institute Headquarters and Director General of Hanban, said that Confucius Institute has become an important platform for the world to understand China, and made important contributions to promoting understanding and friendship between the Chinese people and people around the world, as well as to pluralistic development of the world civilization.