Huang Qifan on China’s Trade Surplus Problem

"From an economic perspective, there are several ways to reduce an excessively large export surplus, the first of which is to allow moderate appreciation of the yuan."

Relatively few retired officials maintain an active public presence in policy debates, and those who do typically come from specialist financial and economic institutions such as the PBoC or central policy-research committees. Huang Qifan is an exception to this, having risen to ministerial-level rank as Mayor of Chongqing, before stepping down in 2016 and being appointed as vice chairman of the Financial and Economic Affairs Committee of the 12th NPC.

Since then, Huang has been able to draw on his credibility as an able economic administrator in Chongqing to maintain an active presence across issues such as rural economic reform, the property crisis, and economic rebalancing in favour of promoting consumption. In the following speech, delivered on 19 May at the annual Tsinghua PBCSF Forum, Huang addresses China’s US$1.2 trillion goods surplus in strikingly direct terms. Several of his observations and recommendations stand out.

First, he is unequivocal in his agreement with the analysis that the scale of the surplus is well beyond the sustainable range, which he places at 2-3% of GDP. Chinese economists often qualify discussion of the trade surplus with the preface that although the goods surplus is high, the current account surplus—factoring in deficits in services and investment income— would only put China’s surplus at the upper end of the acceptable range. However, China’s balance-of-payment accounting has in recent years displayed inconsistencies, and Huang accepts $1.2 trillion as the relevant figure.

Second, while dismissing the idea that China has a deliberate government strategy to expand exports and restrict imports, Huang nonetheless acknowledges that the surplus is policy-driven. He points to local-content requirements, the success of Made in China 2025 in localising supply chains and the important role of widespread export-tax rebates, which he describes as “hidden subsidies”.

Third, Huang proposes concrete measures, above all yuan appreciation and a broader reduction of export-tax rebates. When discussing the surplus, other senior Chinese economists generally reject the idea of “suppressing” exports, tend to limit their proposals to an expansion of imports (ideally agricultural) or overseas expansion of China’s industries. By contrast, Huang’s proposals correspond more closely to the remedies proposed by analysts outside of China. He presents yuan appreciation not only as a tool for trade rebalancing, but also for boosting domestic consumer purchasing power. Framing appreciation as essential to “common prosperity”, he argues that China cannot meet its goal of doubling per capita GDP by 2035 without it. Even so, he rules out rapid appreciation, and his proposal of a 15–20% appreciation over a decade would probably be too gradual to ease European fears of deindustrialisation.

—James Farquharson

Key Points

1. China’s $1.2 trillion trade surplus is historically unprecedented in absolute terms, and far exceeds the sustainable 2–3% of GDP range—which would be around $400-700 billion.

2. The surplus reflects China’s dominance of global manufacturing, now roughly one third of world output, with “Made in China 2025” pushing the country into leadership or peer competition across strategic sectors.

3. China’s export model has shifted away from “both ends outside” [两头在外] processing trade, in which firms imported key inputs and re-exported assembled goods, toward a system where more of each export’s value is generated inside China.

4. Foreign companies operating in China are also central to the emergence of this surplus, supporting around 30 million urban jobs, 15% of tax revenue, one third of exports and half of high-value exports.

5. However, while a trade surplus is economically desirable, having one of such scale is unsustainable in the long run due to the trade friction it generates.

Paid subscribers enjoy early access to select content and full access to Sinification’s archive. As a non-profit, Sinification depends on your support.

6. A key way to reduce the surplus would be moderate RMB appreciation, appreciating by RMB 0.1–0.2 per dollar each year, or 15-20% over a decade, rather than a Plaza Accord-style shock.

7. Currency appreciation would also help China meet its 2035 GDP per capita goal, by raising dollar-denominated per capita GDP toward the level of a moderately developed country even if real growth alone falls short.

8. China has also already begun reducing export tax rebates in sectors such as aluminium manufactures and photovoltaics, and this approach should be extended selectively to weaken hidden export subsidies.

9. Selective cuts to export tax rebates would reduce implicit support for surplus-heavy sectors and release fiscal resources for household transfers, rural income support and targeted poverty relief.

10. Further measures, such as lower import tariffs, stronger wage growth, firmer overtime limits and longer holidays would turn industrial capacity inward by raising household purchasing power, leisure time and demand for services.

The Scholar

Name: Huang Qifan (黄奇帆)
Born: May 1952 (age: 74)
Position: Executive Vice Chairman, China Institute for Innovation & Development Strategy
Previously: Former Mayor of Chongqing; Member of the 18th CCP Central Committee; Vice Chairman of the Financial and Economic Affairs Committee of the 12th National People’s Congress, Deputy Secretary-General of the Shanghai Municipal Government
Other: Huang is a frequent speaker at China Development Forum, Caixin conferences and Tsinghua PBC School of Finance forums.
Research focus: Industrial Upgrading and Structural Reform; Financial and Capital Markets; Digital Economy; International Trade and Global Supply Chains
Education: Shanghai Institute of Mechanical Engineering (1974–77); MBA, China Europe International Business School (1998–99)

TWO “COOL REFLECTIONS” ON TRADE BALANCES
Huang Qifan (黄奇帆)
Tsinghua PBCSF Forum 2026, Chengdu
19 May—transcript (with some errors); recording (07:35:00)
Translation by Cherry Yu

I. The Success of “Made in China 2025”

I am delighted to be participating in this forum hosted by Tsinghua’s PBC School of Finance in Chengdu. Today, I would like to discuss a topic that has attracted widespread attention across society this year: China’s trade surplus exceeded $1.2 trillion in 2025, a development that has sent shockwaves through global financial and economic circles.

What makes this figure so remarkable is that, over the past century, the highest trade surpluses ever recorded by the world’s most successful developed economies have been only around $700 billion. Germany once reached this level, while the historical peaks of both the US and Japan were similarly around $700 billion. Meanwhile, China’s highest annual trade surplus over the past three to four decades has generally ranged between $600 billion and $700 billion. As a result, $700 billion has commonly been regarded as an exceptionally high historical benchmark for a national trade surplus. [Note: The US goods surplus reached $10.33 billion in 1944, which corresponds to a historical peak of $189 billion in CPI-adjusted terms. Similarly, the historical peaks of Germany and Japan did not reach the $700 billion figure that Huang quotes. Germany’s trade surplus reached a peak of approximately $280 billion in 2016, while Japan’s goods surplus in CPI-adjusted terms reached a peak in 1993, corresponding to roughly $200 billion today.]

Last year, however, China’s annual surplus reached $1.2 trillion, surpassing that benchmark by a considerable margin and setting a new historical record. Moreover, during the first quarter of this year, from January to March, China’s monthly trade surplus remained broadly above $100 billion. On that basis, the first-quarter surplus is estimated at around $300 billion, making it highly likely that the full-year surplus will once again reach approximately $1.2 trillion.

Taking this as my starting point, I should like to offer two broader reflections. First, why has China’s trade surplus continued to grow so strongly?

Against a backdrop of the Trump administration’s efforts to impose additional tariffs on Chinese goods, restrict Chinese exports, pursue a “small yard, high fence” strategy and apply pressure across multiple fronts, the fact that China has nevertheless achieved a record trade surplus warrants careful examination. I should make clear that this is not the product of any deliberate policy by the Chinese government to expand exports or the trade surplus.

In fact, over the past decade, the Chinese government has consistently focused on expanding imports. Through measures such as hosting the China International Import Expo [进博会] and lowering import tariffs, it has encouraged foreign goods to enter the Chinese market. China has pursued a new development paradigm centred on domestic circulation [国内大循环], with domestic and international dual circulation reinforcing one another. Against this backdrop, the principal driver behind the sharp increase in China’s trade surplus has been the success of the Made in China 2025 strategy [announced in 2015], which over the past decade has produced five historic achievements.

First, last year China’s manufacturing value added accounted for almost 30% of global manufacturing output, giving rise to what might be termed a “three one-thirds” [“三个三分之一”] structure in global manufacturing: China now accounts for roughly one third of total global manufacturing output; the United States, 26 European countries, the UK, Canada, Australia and other advanced economies—a group of more than 30 economies in total—account for another third; the remaining 150-plus developing countries collectively account for the final third. China has thus emerged as one of the three principal pillars of the global manufacturing system. Over the three centuries since the rise of industrial civilisation, only three countries have ever occupied such a position, among which Britain maintained roughly one third of global manufacturing output for a century.

Secondly, the United States also sustained a share of more than one third of global manufacturing for around eighty years. China has now reached a comparable standing within this “three one-thirds” structure. Whether it will be able to sustain that position for thirty to fifty years, or for eighty to one hundred years, remains to be seen. However, what is clear is that this development marks the start of great changes not seen in a century [百年未有之大变局].

Thirdly, if manufacturing were merely large in scale but low in quality—remaining in a catch-up position [跟跑], dependent on external inputs, absorption and assimilation [消化吸收], and concentrated in labour-intensive mass production—then such expansion would be of limited significance. However, the core objective of Made in China 2025 was to upgrade the ten most important sectors of global manufacturing, which together account for more than half of global manufacturing output. At its core, competition between manufacturing powers is ultimately competition in these ten fields.

In 2010, China remained in a relatively behind [相对落后] catch-up position across all ten sectors, with its development model centred on importing, absorbing and assimilating (external know-how) and cooperation. Following a decade of implementation under Made in China 2025, five of these sectors have moved into the position of pace-setter [领跑], while another five have advanced from catch-up position [跟跑] to pacing challenger [并跑].

The five sectors in which China has become the pace-setter are: shipbuilding; rail transport equipment including high-speed rail and urban transit systems; power-generation and electric grid infrastructure; automotive manufacturing; and new-energy industries. A further five sectors, including advanced materials, next-generation biopharmaceuticals, high-end equipment manufacturing, aerospace, and artificial intelligence and digital technologies, have progressed from a position of comprehensive catch-up to one of competing alongside the global leaders.

The emergence of this industrial structure has enabled Chinese manufacturing to achieve comprehensive coverage across the industrial spectrum. Today, China possesses all 41 major industrial categories, more than 200 intermediate categories and more than 600 sub-categories that make up modern manufacturing. As a result, the United Nations has recognised China as the world’s only country with a manufacturing system that encompasses every industrial category.

The fourth achievement is the fundamental transformation of China’s industrial supply chains. Prior to 2010, more than half of China’s manufactured exports consisted of trade in processed goods [加工贸易]. Even where the end products were relatively sophisticated items such as laptops, mobile phones or air conditioners, their core components, raw materials and critical inputs were sourced from abroad, while China performed only the final assembly stage. To take a simple example, a firm might import $80 billion worth of components and materials, assemble them domestically, and then export the finished products for $100 billion. This form of processing trade, in which both the upstream supply chain and the end market lay outside China [“两头在外”], was essentially a labour-intensive assembly operation. Even where the range of industrial sectors was extensive, overall development remained at a relatively low level so long as production continued to rely primarily on this model.

Over the past decade, one of China’s most important transformations has been the reversal of the pre-2010 pattern in which processing trade accounted for more than half of manufactured exports. Today, around 80% of China’s exports are produced through domestic industrial supply chains and manufacturing clusters. Reflecting this shift, the Ministry of Industry and Information Technology and the Ministry of Science and Technology introduced a national standard for Made in China in 2018. Under this standard, a product qualifies as Made in China if 80% of its components, raw materials and value added are generated within China, regardless of whether it is produced by a state-owned enterprise, a private firm or a foreign-invested company. [Note: This may have been an internal specification, as we were unable to find a document specifying 80% local sourcing as a “Made in China” standard. 2018 was the year that important increases in tax rebates were announced, so it is plausible there may have been an internal definition of local content as qualification for state support at the time.] This illustrates the profound transformation that has taken place in the organisation of China’s manufacturing supply chains.

II. The Role of Inbound Foreign Investment

The fifth achievement has been the upgrading of the foreign investment structure within China’s broader framework of opening up. As China pursued a new development paradigm centred on domestic circulation and the mutual reinforcement of domestic and international circulation, while advancing opening up at a higher level, in greater depth and across a wider range of sectors, the overall volume of foreign investment flowing into the country has not declined but has instead doubled.

Even against the backdrop of the Trump administration’s trade war, its “small yard, high fence” strategy and efforts to encourage divestment and isolate China economically [撤资封锁], foreign investment in China’s industrial and commercial sectors has continued to grow.

That said, it is important to recognise that two categories of foreign investment have seen a broad-based decline over the past seven or eight years: investment in labour-intensive processing industries and investment in infrastructure projects such as ports and motorways. The decline in the latter does not reflect any unwillingness on China’s part to welcome such capital. Rather, it reflects the fact that much of the country’s infrastructure development is now approaching saturation, with domestic investment in these sectors having also fallen sharply. Meanwhile, the decline in labour-intensive processing investment is largely the result of structural relocation, with many of these industries gradually shifting to Southeast Asia, India and other destinations. In addition, the structural adjustment of China’s property sector over the past five years has led domestic private firms to scale back investment in new real-estate projects dramatically, with foreign investment in the property sector correspondingly falling to almost zero.

Over the past one to two decades, these three categories accounted for between 40 and 50% of all foreign investment entering China. Yet, despite the decline in these areas, total inbound foreign investment has not halved. Data shows that between 2000 and 2010, China attracted an average of approximately $60 billion in foreign investment annually, whereas over the past decade annual inflows have remained stable at around $120 billion.

In other words, despite the sharp decline in foreign investment in property, processing trade and infrastructure, total inbound foreign investment has still doubled, implying that foreign investment in China’s industrial sectors has effectively doubled. The relevant data are publicly available, so I will not go into them in further detail here. [Note: The broad point is correct. Official data show overall FDI at consistently above $100 billion annually over the last decade, despite a significant reduction since a peak in 2022. Sectorally, manufacturing FDI fell from $39.54 billion in 2015 to $25.97 billion in 2025. However, simultaneously, high-tech manufacturing FDI rose from $9.41 billion in 2015 to $13.51 billion in 2024, while total high-tech-industry FDI, including high-tech services, reached about $33.9 billion in 2025.]

Taken together, these figures point to a clear conclusion: foreign-invested enterprises in China support around 30 million urban jobs, accounting for approximately 7% of the country’s total urban workforce of roughly 400 million. They also contribute 15% of national tax revenue; at present, the non-state sector accounts for around 50% of total tax receipts, of which foreign-invested enterprises contribute 15 percentage points. In exports, their role is equally significant: last year, China’s total exports reached $3 trillion, with foreign-invested enterprises contributing $1 trillion or roughly one third of the total. Their share is even higher in high value-added exports, where it reaches around 50%. Smartphones are a typical example: annual exports exceed $100 billion and Apple iPhones manufactured in Zhengzhou and Shenzhen are almost entirely export-oriented.

Taken together, China’s manufacturing sector has made five major advances over the past decade or so, each of which has supported the growth of the country’s export surplus. Once China’s manufacturing output accounts for one third of the global total, its exports will naturally expand accordingly.

Moreover, the quality and sophistication of this one-third share of global manufacturing have risen markedly: five sectors now occupy a position of global leadership, while another five are competing alongside the global leaders. Today, 90% of China’s exports are mechanical, electrical and electronic products, which are capital-intensive and technology-intensive goods.

Last year, China’s total exports reached $3 trillion, 90% of which consisted of high value-added products. Chips were the largest export category, with annual exports exceeding $160 billion, ranking first among China’s dozen or more major export categories. Ship exports ranked second, at more than 30 million tonnes, while vehicle exports reached 8 million units, generating more than $100 billion in export revenue despite an average export value of less than $20,000 per vehicle. Photovoltaic products were another important export category. Overall, 90% of China’s exports now consist of mechanical and electrical products, rather than the light-industrial goods, textiles and processing-trade products that once dominated its export basket, reflecting a profound transformation in the country’s export structure. [Note: This does not appear entirely accurate. Official customs data show that machinery and electrical products [机电产品]—a category that includes most electronics—accounted for around 60% of China’s exports.]

Another important change can be seen in the structure of China’s trade surplus. In the past, exporting $100 billion worth of processing-trade goods required $80 billion of imported components and raw materials for assembly, generating only $20 billion in domestic value added and a trade surplus of the same amount. Today, when China exports $100 billion worth of goods, 80-90% of the components and raw materials are supplied domestically, allowing it to generate a trade surplus four to five times larger than in the past.

Foreign-invested enterprises also play an extremely important role: they account for roughly one third of China’s exports overall, and around half of its exports of higher-end products. Taken together, these five developments help explain why China has recorded a trade surplus of $1.2 trillion. It is not the result of a deliberate export-oriented strategy, nor of government efforts to drive exports through preferential treatment and incentive policies. Rather, it reflects the gradual strengthening of China’s manufacturing sector and the natural rise in its industrial competitiveness. This is my first reflection.

III. Recommendations to Reduce the Surplus

My second reflection concerns whether a trade surplus of $1.2 trillion is reasonable over the long term and whether it is necessary to maintain it at this scale. Basic economic principles suggest that it is detrimental to economic development to run a trade deficit over the long term and there exists a rationale for maintaining a long-term trade surplus. However, it is difficult to justify indefinitely sustaining an exceptionally large surplus as it may exacerbate international trade frictions and create other related problems. As a rule of thumb, a trade surplus equivalent to around 2-3% of GDP can be regarded as both economically justifiable [合理性] and sustainable [可持续性], reflecting the requirements of continued national prosperity while remaining broadly acceptable to the international community.

China’s GDP currently stands at around RMB 140 trillion. On that basis, a trade surplus equivalent to 2% of GDP would amount to RMB 2.8 trillion, while 3% would amount to RMB 4.2 trillion or roughly $400-700 billion. This is the range within which a trade surplus can be regarded as reasonable, whereas China’s current surplus of $1.2 trillion has already exceeded it [Note: equivalent to over 6% of GDP].

From an economic perspective, there are several ways to reduce an excessively large export surplus, the first of which is to allow moderate appreciation of the yuan. China is not in favour of a sharp appreciation of the yuan over a short period of time, such as by 30, 50 or even 100% within the span of a month or a year. In the 1990s, the yen traded at around ¥240 to the US dollar. Under pressure from the United States, it appreciated rapidly, reaching ¥120 to the dollar within a year and at one point strengthening to as high as ¥90. This kind of abrupt currency appreciation ultimately plunged the Japanese economy into two decades of stagnation and it is clearly not an approach China would choose to follow. [Note: Huang compresses the chronology of the yen’s appreciation. The yen’s rise from around ¥240 to the dollar occurred over several years following the 1985 Plaza Accord, reaching roughly ¥120 by 1988 and a peak near ¥80 to the dollar in 1995.]

By a moderate appreciation of the yuan, we mean a gradual annual appreciation of RMB 0.1 to 0.2 against the US dollar, amounting to a cumulative appreciation of around RMB 1 over five to six years. Such a step-by-step adjustment would result in a total appreciation of roughly 15 to 20% over a decade, a pace of adjustment that would be economically sound. As the yuan appreciates, its purchasing power rises, lowering the cost of foreign goods and helping to expand imports, while increasing the cost of Chinese exports by more than 10% in yuan terms, thereby exerting a restraining effect on export volumes and helping to reduce the trade surplus.

Moreover, a moderate appreciation of the yuan would help advance China’s existing per capita GDP development goals. Under current plans, China aims to double per capita GDP from around $13,000 in 2025 to more than $20,000 by 2035, effectively doubling it over the course of a decade, a goal that has already been incorporated into the Fifteenth Five-Year Plan. [“十五五”规划]. [Note: The 2035 goal as per the current Five-Year Plan outline is actually a doubling of GDP per capita relative to 2020 rather than 2025, leading to a figure of around $20,000.] However, economic growth alone will not be sufficient to achieve this goal. At an annual growth rate of 5%, per capita GDP would fall short of doubling over the next decade, with an increase of only 70 to 80%, whereas achieving a doubling would require average annual growth of around 7%. [Note: Although a genuine 5% annual growth rate would not double the GDP per capita from 2025, it would actually still be sufficient to double from 2020 levels without currency appreciation.]

Why is China able to set a target in the Fifteenth Five-Year Plan of achieving $26,000 in per capita GDP? The core reason is that the Plan has already taken into account a cumulative appreciation of the yuan against the US dollar of 15 to 20% over the upcoming decade. Even if actual economic growth only drives GDP to increase by 70 to 80%, the additional boost from currency appreciation would allow dollar-denominated per capita GDP to double, enabling China to reach the per capita income levels of a moderately developed country ahead of schedule. This is another important implication of exchange-rate adjustment.

The yuan has already begun to appreciate moderately, strengthening in recent months from around RMB 7.3 to the US dollar to approximately RMB 6.8, while still leaving room for further appreciation. That said, China will not allow the yuan to strengthen to RMB 5 or RMB 4 to the dollar; at most, it is likely to appreciate to around RMB 6 to the dollar by 2035.

Second, appropriate limits should be placed on the trade surplus by reducing export tax rebates, which currently function as a hidden export subsidy [出口隐性补贴]. At present, China provides export rebates on various major product categories, corresponding to the 13% VAT bracket, with rebate rates varying by product at 5, 7, or 9%. The total annual value of these rebates exceeds RMB 3 trillion, leaving scope for targeted reductions in selected sectors. [Note: This exceeds the figure in data published by the Ministry of Finance, in which export tax rebates are calculated as amounting to RMB 2.13 trillion in 2025.]

For example, since the first quarter of this year, the government has introduced measures to reduce export tax rebate rates for products such as aluminium manufactures and photovoltaic goods. As lower tax rebates effectively amount to a reduction in export subsidies, the resulting fiscal savings—estimated at between RMB 1 trillion and RMB 3 trillion—could be redirected to support domestic households, fund poverty alleviation and hardship-relief [扶贫帮困] programmes, and raise rural incomes. The availability of such resources would provide strong financial support for these public welfare initiatives. This is my second recommendation.

Third, import tariffs should be reduced further. The average import tariff among WTO members currently stands at around 5%, while tariffs among members of free trade agreements tend to fall progressively towards zero. As a supporter of free trade arrangements including RCEP and the CPTPP, China has consistently upheld the WTO principle of low tariffs and has already reduced its average import tariff rate from the levels prevailing in the 1990s and 2000s to around 7% today. There remains scope for a further reduction of two to three percentage points, which would gradually bring China’s tariff levels into line with the global average and help stimulate import growth.

When the Trump administration imposed additional tariffs on Chinese goods, China responded with reciprocal countermeasures and firmly defended its legitimate rights and interests without making concessions [寸步不让], an entirely reasonable stance in the context of a trade dispute. However, from the broader perspective of China’s approach to global trade cooperation, a moderate reduction in import tariffs would help to rebalance an excessively large trade surplus.

Fourth, steps should be taken to address excessive involution [内卷] among export-oriented firms. Practices associated with the so-called “5+2”, “daytime work followed by evening overtime” [白加黑] and “996” work cultures, which rely on excessive overtime as a means of competing, should be regulated and adjusted through improvements to labour rules, employment practices and compensation systems. Reducing unreasonable overtime and steadily raising workers’ incomes would likewise help to rebalance an excessively large trade surplus.

Finally, holiday arrangements could be further optimised. China currently has 52 weekends in a year, amounting to 104 rest days. Together with more than ten days of paid leave, this brings the total number of annual leave days to just over 120, compared with around 150 in many Western countries and other parts of the world. China could therefore moderately increase the number of paid leave days, for example by adding one or two days each to the National Day holiday, Labour Day and New Year’s Day, as well as a further two or three days to the Spring Festival holiday, resulting in an additional five to ten days of leave per year. Such adjustments would help boost domestic consumption and contribute to a gradual reduction [逐步回落] in the trade surplus.

The implementation of these five measures would not signify a weakening of China’s industrial competitiveness through a reduction in the trade surplus. Rather, it would channel the strengths and productive capacity of Chinese manufacturing into higher incomes and living standards as part of the pursuit of common prosperity [共同富裕], while enhancing the substantive value [含金量] of China’s GDP, an area in which China retains ample room for adjustment.

Made in China 2025 has already delivered five major achievements, providing an exceptionally favourable foundation for China over the next couple of decades to translate these developmental gains and industrial capabilities into improvements in public welfare and economic strength, as well as build an orderly framework of mutually beneficial cooperation with countries around the world. That concludes my remarks. Thank you all for listening.

READ MORE