Merkel made the remarks in a joint press conference with Chinese Premier Li Keqiang at Beijing's Great Hall of the People, on her seventh visit to China since taking office in 2005.
According to the newspaper, the government has previously not monitored its allies, although this policy has increasingly come under question since the Edward Snowden NSA spy leak affair broke.
Citing a leaked interior ministry paper, Bild said German authorities were planning counter-measures, including in electronic surveillance measures.
And Foreign Minister Frank-Walter Steinmeier said: "If reports are correct, we are not talking here about small potatoes."
"As a matter of policy, we do not discuss the details of pending law enforcement matters or allegations of intelligence activity.
"We are working with the German Government to ensure this issue is resolved appropriately."