context: A record PRC trade surplus of US$1.2 tn has revived concerns over global imbalances and a potential ‘China shock’, leading economies like the US and EU to launch trade probes to curb trade and tech flows with Beijing. While geopolitics dampened PRC imports and widened the surplus, the imbalance is rooted as much in other factors: the PRC's increasingly competitive higher-end exports and persistently weak domestic demand meet a US economy structurally reliant on consumption enabled by the dollar’s global dominance. Narrowing the surplus will likely require a mix of domestic policy adjustments and coordinated international responses.
Zhang Yansheng 张燕生 Chinese Academy of Macroeconomic Research researcher discusses the PRC’s trade surplus, overseas investment and RMB internationalisation
- strong external demand continues despite moderate global economic growth
- the PRC’s market and industrial advantages have strengthened export competitiveness
- this year's Government Work Report prioritises domestic demand, while the 15th 5-year plan focuses on building a modern industrial system
- rebalancing consumption and investment is key to narrowing the divergence between exports and domestic demand
- a persistent goods trade surplus represents sustained net outflows of real resources
- as the economy matures, national strategy has shifted from participating in 'global circulation' to prioritising 'domestic circulation'
- the PRC should reduce net outflows of real resources
- retain more resources within the domestic economy and import more foreign goods and services
- the PRC should reduce net outflows of real resources
- as the economy matures, national strategy has shifted from participating in 'global circulation' to prioritising 'domestic circulation'
- large export volumes from a major economy are increasingly likely to trigger trade frictions
- the PRC’s expanding export sectors generate export volumes that few overseas markets can fully absorb
- uncoordinated overseas expansion could concentrate firms in the same markets
- increasing commercial tensions and trade frictions
- uncoordinated overseas expansion could concentrate firms in the same markets
- leading firms across industries now report internationalisation rates exceeding 50 percent
- firms are moving beyond product exports towards overseas production and tech expansion
- foreign restrictions on the PRC’s overseas products, industrial investment and tech have become increasingly stringent
- Beijing should perhaps consider a coordination mechanism on exports and firms' overseas expansion to reduce trade frictions
- the PRC’s expanding export sectors generate export volumes that few overseas markets can fully absorb
- strong export performance, narrowing services trade deficits and improving industrial competitiveness support continued RMB appreciation
- enhance the wealth effect of RMB-denominated assets and support RMB internationalisation
- cross-border investment will move up the ‘smile curve’, with greater emphasis on research and development, tech, design and information services
- production-related services, logistics, finance, talent and information services are becoming increasingly competitive
- manufacturing output may continue to grow, but its relative share is expected to decline
- export and industrial structures are expected to continue upgrading towards higher value-added activities
- offshore RMB markets could leverage global financial infrastructure, products, talent and regulatory expertise
- they could support the development of the onshore RMB and the onshore financial market system
- Hong Kong should play a central role by strengthening cross-border financial flows while managing risks
- the PRC’s labour-intensive export sectors such as textiles, apparel, footwear, luggage and toys remain globally competitive
- cross-border e-commerce has become one of the fastest-growing forms of new trade, applying AI and IT to traditional products
- strengthening the competitiveness of traditional industries
- demand for competitively priced, high-quality products is rising as European consumers trade down amid weaker economic conditions
- strong competitiveness should not become winner-takes-all competition, triggering protectionism
- firms should strengthen compliance, avoid low-price competition and improve branding and service capabilities
- cross-border e-commerce has become one of the fastest-growing forms of new trade, applying AI and IT to traditional products