context: The PRC ran a record U$1.19tn trade surplus in 2025, showing its external sector remains resilient despite rising protectionism. Its ‘dual‑circulation’ strategy aims to build a stronger home market and shield it from shocks, while staying open to global trade. Beijing is also pushing ‘institutional opening’ to draw in higher‑quality goods and services. But ongoing US curbs on trade and advanced technology are likely to drag on industrial upgrading and market expectations, slowing the PRC's shift toward more consumption‑driven growth.
Zhang Yansheng 张燕生 Chinese Academy of Macroeconomic Research researcher shares his latest insights on PRC trade
- PRC–US trade share declined to 8.8 percent in 2025, down from 14.2 percent in 2017
- sharper decline in intermediate goods trade (e.g. components, raw materials) than broader trade
- tariff escalation and rules targeting transhipment (e.g. up to 40 percent tariffs) constrain intermediate goods trade
- PRC exports remain robust in 2025, which could give rise to further trade conflict with the US
- sharper decline in intermediate goods trade (e.g. components, raw materials) than broader trade
- the PRC continues to run a services trade deficit with the US, especially in IP and royalties, indicates weakness in high-value services
- the PRC’s modernisation requires managing its relationship with the global economy
- promoting 'balanced trade' will be the next focus area
- need to transition from East Asian export-oriented model to domestic demand-led model
- previous model shaped by strong external orientation, has also led to sector-specific trade frictions
- new framework: ‘dual circulation’
- strengthen domestic circulation, including all stages of supply and demand, production and distribution, and circulation and consumption
- domestic and international trade flows should be mutually reinforcing
- development of new competitive advantages
- emphasises 'trade-investment integration', whereby firms respond to export constraints by localising production overseas
- build shared interests and reduce frictions
- expanding imports is more critical than reducing exports
- imports increase interdependence with partners
- requires expansion of domestic demand
- regulatory frameworks should ensure not only market access but also enable foreign firms to grow within the PRC
- for Chinese firms, shifting from scale to quality and from speed to efficiency requires transformation
- driven by adopting new tech such as AI, cloud computing, big data and blockchain
- policy response to ‘involution’ (over-competition)
- excessive price competition driven by overcapacity and ‘winner-takes-all’ dynamics
- potential solutions include
- stronger corporate self-discipline
- rein in interference by non‑economic players, including local governments, which may spur excess capacity
- as concentration rises, leading firms tend to shift from price competition toward differentiated strategies
- PRC–US economic relations outlook
- the 15th 5-year plan emphasised ‘great power relations are affecting domestic PRC development'
- tech resilience and upgrading is the most important factor
- potential leaders’ meeting seen as key stabilising factor
- Washington is withholding aggressive moves in anticipation of this meeting
- US continues containment through trade agreements with ‘poison pill clauses’
- risk of fragmentation if partners (e.g. ASEAN) are forced to choose sides
- despite the tariff entente on the surface, PRC–US rivalry continued in other areas like security, AI and finance (e.g. currency and safe-haven assets)
- the 15th 5-year plan emphasised ‘great power relations are affecting domestic PRC development'