On China's Trillion Dollar Trade Surplus | Xu Mingqi
"[China should] expand imports of products not related to national security by selectively lowering import tariffs and licensing thresholds for certain goods."
Today’s edition opens with an introduction by Max J. Zenglein, Asia-Pacific Senior Economist and Centre Leader, Asia Economy, Strategy and Finance, at The Conference Board of Asia. He is also Chair of Sinification’s board of trustees. Max was previously Chief Economist at the Mercator Institute for China Studies (MERICS). His research focuses on economic systems, industrial policy, labour markets, and the evolving dynamics of globalisation and economic security. Max is one of those people without whose support my professional path would have taken a very different turn, and to whom I remain deeply indebted. — Thomas
2025 marked another year of a record trade surplus, driven by surging exports and weak imports. For some, the surplus reflects China’s manufacturing competitiveness and is seen as vital to securing national interests amid a rapidly shifting geopolitical backdrop. For others, it points to domestic imbalances and subdued consumption, which in turn risk triggering backlash from trading partners in both advanced and emerging economies.
Among Chinese economists and scholars, there is a lively debate over how to address these underlying issues. Prescriptions vary from defensive approaches that focus more on shaping the narrative to proposals aimed at tackling what is perceived as a structural imbalance that require deeper economic reform.
In his speech, Xu Mingqi opposes stronger policy interventions to curb exports, arguing that measures such as exchange-rate appreciation or the abolition of tax rebates are ill-advised due to their potential negative impacts on China’s economy, including harm to exporting enterprises, employment, and GDP growth. Instead, he defends the trade surplus as a natural outcome of comparative advantage, while acknowledging that its effects are “overwhelming the manufacturing sector of most trading partners”.
Resulting domestic imbalances are not emphasised, nor is the role of expanding Chinese FDI and more integrated global supply chains. The solutions put forward are instead narrowly focused on increasing imports, with relatively little detail on how this could be accomplished.
To alleviate pushback against exports, Xu argues that the focus should be on “expand[ing] imports of products not related to national security”. Although China may dominate many industries, it still has a comparative disadvantage in other areas, such as agriculture and other commodities. Coupled with the growth of e-commerce and granting improved access for foreign SMEs, stronger imports would reflect “China’s commitment to the concept of a community with a shared future for mankind”.
Xu’s arguments are deeply embedded in China’s national and economic security priorities, while largely discounting concerns from trading partners about excessive dependencies, the erosion of their manufacturing bases, and the impact on their economic development trajectories. From this perspective, China’s external strength outweighs its internal weaknesses, which are treated as a secondary concern amid heightened geopolitical volatility. Xu’s position therefore appears closely aligned with Beijing’s current policy stance, which approaches relations with trading partners from a position of strength.
— Max J. Zenglein
Key Points
By November 2025, China’s goods trade surplus reached US$1.0758 trillion, though the current account surplus is much smaller because services, income and transfers offset part of the goods surplus.
Manufacturing competitiveness, especially cost and efficiency advantages, combined with long-standing export incentives—tax rebates, cheap credit and development zone preferences—form the structural foundation of the surplus.
On the demand side, weak domestic absorption—high savings; consumption and investment not fully absorbing output—structurally pushes excess production abroad.
The recent widening also reflects export–import divergence: exports grew around 5% in 2025 while imports were weak on a year-to-date basis.
The surplus’s main cost is external: trading partners cite overcapacity and subsidies to justify escalating protectionist measures, making the current trajectory unsustainable.
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Blunt fixes are risky: export restraint would hit growth and jobs, large RMB appreciation could trigger asset repricing, sectoral disruption and capital outflows, and abolishing rebates would shock exporters.
Stimulating low-income consumption will not boost imports significantly, since poorer households have low demand for foreign goods.
China’s trade policy combines export orientation with import substitution, systematically suppressing imports even as exports grow; efforts should be made to facilitate imports where other countries have a comparative advantage.
Lowering tariffs and licensing thresholds, and building overseas warehouses for imported goods, would reduce barriers for foreign SMEs that currently struggle to access China without a local partner.
Liberalising agricultural and resource imports where China lacks comparative advantage would ease trade frictions and strengthen China’s leverage in shaping international trade rules.
The Author
Name: Xu Mingqi (徐明棋)
Born: July 1953 (age: 72)
Position: Research Fellow, Institute of World Economy, Shanghai Academy of Social Sciences (SASS)
Previously: Director, Finance Teaching and Research Office, Jiangxi University of Finance and Economics (JUFE); Vice Director, Public Finance & Finance Department, JUFE
Other: Honorary Director (and former Director), Centre for European Studies, SASS; Vice Chairman (副理事长), China Centre for International Economic Exchanges, Shanghai Branch; Honorary President (and former President), Shanghai European Studies Association
Research focus: International financial systems; foreign exchange theory; monetary policy; and China’s financial reform
Education: BA Xiamen University (1976); MA Global Economics, SASS (1982); PhD Global Economics, SASS (1994)
Experience Abroad: Received State Education Commission Scholarship to University of Western Ontario, Canada (1987-1988); Visiting Scholar, Harvard-Yenching Institute, Harvard University (1995-1996); Recipient of the Asian Scholars Research Fellowship (2001)
TRILLION-DOLLAR TRADE SURPLUS SPARKS HEATED DEBATE
Xu Mingqi (徐明棋）
Published by Guancha on 9 January 2026
Translated by Elijah Karshner
(Illustration by OpenAI’s ChatGPT 5.2)
I would like to begin by “casting bricks to attract jade” [抛砖引玉], putting forward my modest thoughts in the hope of jointly exploring this important issue with everyone.
China’s trade surplus has followed a steep upward trajectory since 2018 and has repeatedly reached new heights from 2021 onwards; this is not a new phenomenon. By November 2025, the trade surplus reached US$1.0758 trillion, setting a historic record. This breakthrough beyond the one-trillion-dollar mark has attracted widespread attention and intense discussion among academics, markets and the international community. [Note: The trade surplus figure is cumulative for January–November 2025, using Chinese customs data, US$ rather than RMB.]
I. The Causes of China’s Trade Surplus
There is now broad consensus among scholars and the wider public regarding the causes of the trade surplus, which mainly include the following aspects:
First, the overall competitiveness of China’s manufacturing sector has improved significantly, giving it a pronounced cost advantage over trading partners. This constitutes an important foundation for the formation of the surplus.
Second, China has long implemented export-oriented incentive and support policies, including export tax rebates, financial support (with export firms able to obtain low-cost credit), industrial policy support and preferential treatment across various development zones and industrial parks [各类园区优惠]. These measures have provided strong support for export growth.
Third, on the domestic demand side, investment and consumption have failed to fully absorb domestic output, while the national savings rate has remained persistently high, resulting in what may be described as a “savings surplus” [储蓄过剩]. According to the national income identity, savings in excess of consumption and investment will ultimately be reflected in a current account surplus or a trade surplus.
Fourth, imbalances in the growth rates of exports and imports have further expanded the surplus. In recent years, China’s exports have maintained relatively stable growth, while import growth has slowed markedly. From January to November 2025, imports even recorded consecutive negative growth, whereas exports continued to grow at around 5 per cent. This contrast has driven the surplus to even higher levels. [Note: In US$ terms, cumulative imports for January to November fell 0.6% year-on-year according to customs data, while exports grew 5.4%. Monthly import growth turned positive later in the year, but the cumulative year-to-date figure remained negative. Full-year imports were essentially flat, following strong imports in December. In RMB terms, the same release has January-November year-on-year imports +0.2%.]
II. A Comparison between the Trade Surplus and the Current Account Surplus
It is worth noting that although China’s trade surplus is very large, its current account surplus is not as pronounced as is often assumed externally. As the current account deducts deficits in services trade, investment income and unilateral transfers, its surplus is far smaller than the trade surplus, accounting for only around 3.5 per cent of China’s GDP, which falls within internationally acceptable limits. [Note: 3.5% is the implied share-of-GDP for the first three quarters according to SAFE Q1–Q3 2025 data.]
International mechanisms such as the G20 and G7 have previously set a basic principle that current account surpluses should not exceed 4 per cent of GDP. [Note: The “4% of GDP” cap is often cited in Chinese commentary, but it was a proposed benchmark in the G20 rebalancing debates rather than an adopted rule; the G20 ultimately agreed only to non-binding “indicative guidelines”.]
China’s current level has not breached this threshold. In 2024, China’s trade surplus had already exceeded US$900 billion, while the current account surplus remained at around US$400 billion. In 2025, it is expected to surpass US$500 billion, likewise reaching a historical high, but still remaining significantly smaller than the trade surplus. This distinction is also important for understanding the surplus. [Note: “Expected to surpass US$500 billion” is conservative. SAFE puts the Q1–Q3 2025 current account surplus at US$492.8 billion.]
III. Problems Arising from the Expansion of the Trade Surplus
The core issue arising from the continued expansion of the trade surplus lies in the widespread concern it has generated internationally, becoming a key basis for trading partners’ criticism of China [指责中国的重要论据].
Domestically, many argue that the trade surplus reflects China’s enhanced competitiveness and serves as an important driver of economic growth amid weak investment and consumption. Trading partners, however, have reacted strongly, accusing China of issues such as overcapacity, state subsidies and distortions arising from industrial policy. An article published by the Financial Times on 15 December 2025 pointed out that China’s trade surplus is not only China’s own problem but also a global one. [Note: The article in question is probably Eswar Prasad’s “China’s US$1tn trade surplus is a problem for Beijing — and the world”, Financial Times, 13 December 2025.]
It argued that China’s expansion of credit to stimulate investment has led to overcapacity, that slow growth in employment and wages has resulted in weak consumer demand and that government support for exports has restricted foreign goods from fully entering the Chinese market—these being the main reasons for the continuously expanding surplus. The article concluded that other countries would adopt more protectionist policies towards China and that China’s growth model and trade surplus therefore lack sustainability.
Against this backdrop, trade frictions have continued to intensify. The United States has steadily escalated its trade restrictions on China, the European Union has frequently launched anti-subsidy and anti-dumping investigations into Chinese goods and countries in the Global South such as Mexico, Brazil and Indonesia have also adopted protectionist measures including tariffs. Addressing these issues has become an urgent and important task.
IV. Discussion of Relevant Policy Recommendations
[Chinese] scholars have put forward numerous policy recommendations, such as expanding domestic investment and consumption demand and implementing the dual-circulation strategy to broaden the domestic market. These proposals are all reasonable in their intentions [在方向上均具有合理性].
According to the national income identity, persistent surpluses stem from insufficient domestic investment and consumption. Macroeconomic policy adjustments are therefore necessary, but it must be recognised that this is a long-term structural issue and that the pattern of the trade surplus cannot be rapidly altered in the short term.
With regard to specific policy choices, I hold the following views:
Restricting exports is not feasible. Exports are closely linked to China’s GDP growth and employment stability and directly constraining exports would have negative effects on the economy and livelihoods.
Nor do I support a sharp appreciation of the renminbi (RMB). Although the authorities have relaxed management of the RMB and it has gradually appreciated, historical and international experience suggests that only a very substantial appreciation—for example, to around 5 RMB per US dollar—would truly eliminate the surplus. Such a sharp appreciation would trigger a re-pricing of domestic assets, imbalances across industrial sectors and a series of knock-on negative effects, entailing considerable risks. Even an appreciation of 10–30 per cent, judging from Japan and China’s own experience, would only partially reduce the surplus, while China’s structural surplus remains substantial. Moreover, an overly rapid appreciation of the RMB could intensify pressures for capital outflows.
I do not support the complete abolition of export tax rebates. Over the long term, the export rebate system has created a stable industrial ecosystem and abolishing it entirely would deliver a severe shock to a large number of export-oriented firms. However, for certain enterprises that rely solely on rebates to sustain marginal profits, lowering rebate rates could encourage their exit from the market and help optimise the industrial structure.
I oppose imposing export taxes on ordinary manufactured goods. Aside from strategic products related to national economic security and livelihoods [国计民生], where export controls and taxes may be justified, imposing export taxes on ordinary manufactures lacks a sound rationale. It would shift policy from export encouragement to a negative constraint [转向反向约束], undermining the stable development of trade.
Policies aimed at stimulating domestic consumption and investment are correct, but they must be viewed objectively. Weak domestic consumption, high savings rates and the trade surplus are mutually reinforcing: insufficient consumption leads to overcapacity and reliance on exports, while the accumulation of trade surpluses in turn entrenches structural economic imbalances. Although strengthening the social security system and unleashing consumption demand are important directions, increases in consumption among lower-income groups tend to translate into relatively low demand for imported goods. In the short term, this makes it difficult to convert consumption growth directly into higher imports, limiting its effectiveness in reducing the surplus.
V. Policy Recommendations: Focusing on Trade Policy Adjustment and Expanding Imports
From the perspective of comparative advantage theory, China’s current trade is driven more by absolute advantage [绝对优势], with the overall efficiency of its manufacturing sector overwhelming that of most trading partners, making a surplus to some extent inevitable. However, comparative advantage theory holds that under free trade, even countries without absolute advantages possess comparative advantages in certain areas. Although China has absolute advantages in many industries, it still faces comparative disadvantages in some products—for example, certain agricultural goods constrained by soil and other natural conditions, where foreign products enjoy a relative comparative advantage. Expanding imports of such goods could enhance domestic welfare while easing pressure from the trade surplus.
At present, China’s trade policy combines export orientation with import substitution and industrial upgrading has largely taken import substitution as its objective. This has resulted in steady export growth alongside persistently weak imports. Over time, the sustainability of trade will be challenged and external protectionism will continue to intensify.
Accordingly, it is recommended that, while expanding domestic investment and consumption, greater emphasis be placed on adjusting trade policy, with the expansion of imports being the most effective option at present with relatively limited side effects:
Expand imports of products not related to national security by selectively lowering import tariffs and licensing thresholds for certain goods, thereby allowing a wider range and greater diversity of foreign products to enter the Chinese market.
Encourage e-commerce firms to establish overseas warehouses for imported goods, reducing logistics and distribution costs for foreign small and medium-sized enterprises seeking to enter the Chinese market. Although China’s average tariff level is not high, value-added tax, licensing barriers and the costs of building distribution channels continue to block many foreign SMEs—especially those without local partners or joint ventures in China—from entering the market. Even when cooperation intentions are reached at import expos, implementation subsequently encounters numerous difficulties.
Break import monopolies in certain product categories and optimise import quota management. For example, by liberalising markets for a broader range of agricultural and resource-based products [资源型产品], domestic farmers could focus on producing high-end organic goods, while imports of ordinary agricultural products that are highly dependent on land and water resources could be appropriately increased to meet everyday consumption needs and achieve more efficient resource allocation.
Since 2025, declines in the prices of bulk commodities such as grain and oil have freed up part of China’s import budget, which could be used to increase imports of other goods. Expanding imports would not harm employment or economic growth; rather, it would stimulate consumption, enhance producer and consumer welfare and reduce the risks associated with excessive accumulation of foreign exchange reserves (in order to mitigate overly rapid growth in reserves, China increased its gold holdings by 320,000 ounces in the first eleven months of 2025; rapid accumulation of gold has also driven a sharp rise in international gold prices). [Note: It is unclear what data the author is referring to here—According to official reserve data, gold reserves increased by 670,000 ounces from end-January until end-November 2025.]
At a higher level, expanding imports reflects China’s commitment to the concept of a community with a shared future for mankind [人类命运共同体理念], enabling trading partners to share in China’s economic growth and the dividends of its vast market. Gaining influence in international trade discourse also depends on the parallel expansion of imports alongside exports. Only by allowing trading partners to genuinely experience the attractiveness of the Chinese market and the opportunities for cooperation can China gain greater influence in international rule-making and better uphold the global multilateral free trade system.
At present, China’s trade surplus with the European Union has already surpassed that with the United States, while EU exports to China are trending downward. This is one of the important reasons behind the EU’s adoption of more protectionist measures. By expanding imports and optimising the trade structure, China can ease trading partners’ dissatisfaction, reduce trade frictions and create a more favourable international environment for its trade and economic development. Thank you all.
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