context: Strong PRC exports drove a record US$1.19tn trade surplus in 2025, despite rising US protectionism. To cut external risk, Beijing is doubling down on outbound investment, offshore production and broadening trade ties with countries such as ASEAN. Yet, Washington’s new trade probes, the PRC’s tighter supply‑chain security rules and more trade barriers erected in the EU and other markets may strain firms’ overseas reach.
Zhang Yansheng 张燕生 Chinese Academy of Macroeconomic Research researcher suggest how the PRC should adapt its trade policies
- three future supply chain model scenarios
- parallel PRC-US supply chains
- both sides' supply chains have decoupled from each other
- PRC firms in Western markets may need a more global brand identity
- diversified supply chain blocs
- middle powers may form alternative supply chain networks independent of the US and the PRC
- global supply chains could become more localised, regionalised and bloc-based
- large-scale wars, non-traditional security conflicts, financial crises, currency disruptions, tech shocks or pandemics could severely disrupt global supply chains
- countries may weaponise supply-chain advantages to advance national interests
- the PRC should carefully plan the supply-chains of strategic sectors
- including new energy, AI, semiconductors, biopharmaceuticals, food and critical minerals
- parallel PRC-US supply chains
- for the PRC, a key priority is addressing excessive competition (‘involution’), particularly in overseas markets
- trade incentive mechanisms require broad reform, including
- exchange-rate formation mechanisms
- foreign exchange controls
- export tax rebate policies
- interest rates, tax, monetary and pricing frameworks
- shifting from surplus-driven trade growth toward high-quality development
- trade incentive mechanisms require broad reform, including
- the PRC should adopt ‘normalisation mechanism’ to move beyond the export-led East Asian model
- it should adopt a development strategy with a global outlook suitable to a major power to have a better relationship with the world
- export-oriented growth models in East Asia generated strong industrial competitiveness but also trade frictions
- Japan experienced recurring trade frictions with the US as successive industries gained international competitiveness
- ageing populations contribute to intense domestic competition
- the PRC should be cautious that domestic overcompetition could have a greater impact on its relations with the world
- recent exchange-rate, export tax rebate and trade support reforms in the PRC aim to reduce trade surplus-related distortions
- they are part of the drive to push for trade ‘normalisation’
- the current RMB appreciation largely represents a return to pre-pandemic levels, rather than a structural appreciation comparable to Japan after the Plaza Accord
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- despite RMB appreciation, the PRC's nominal GDP remains ten percent below its 2021 level relative to the US due to divergent inflation trends
- comparisons between current RMB movements and Japan’s sharp yen appreciation from 1985 to 1995 are misleading
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- the PRC's U$1.2tn trade surplus is unsustainably large
- it could persist without major reforms
- many leading supply chain firms have a degree of internationalisation of over 50 percent
- overseas expansion is growing faster than domestic demand
- contributing to both domestic and overseas overcompetition
- overseas expansion is growing faster than domestic demand
- need stronger coordination between domestic and external economic systems