China’s $1.2 trillion trade surplus hides a slowdown at home

China recorded a global trade surplus of $1.2 trillion last year, the highest on record, a figure that has drawn sharp criticism from policymakers in other countries. They argue that generous state subsidies have driven excess manufacturing capacity, with the surplus goods then exported to overseas markets. But behind that record surplus, China’s own economy has been losing momentum.

Official data released on Wednesday showed the economy expanded at an annualised 4.3% in the April-June quarter, down from 5% in the January-March quarter and below forecasts. It marks China’s slowest pace of growth in more than three years, even as exports kept climbing through the same window.

Customs figures showed outbound shipments rose 17.6% in the first half of the year compared with the same period a year earlier, and jumped 27% in June alone. Growth was supported in part by the artificial intelligence boom and strong overseas demand for Chinese electric vehicles, and China has also largely avoided the wider economic fallout from the Iran war, even as higher energy prices added to inflationary pressure globally.

That export momentum has not translated into a recovery at home. Consumer spending and investment remained weak, and economists say the economy is becoming increasingly uneven — government support and private capital keep flowing into advanced sectors such as artificial intelligence, robotics and semiconductor manufacturing, while lower-value manufacturing and service industries that generate large numbers of jobs continue to lag behind.

Household spending has stayed under pressure as well, with families continuing to hold back on major purchases amid a prolonged downturn in the property market and ongoing uncertainty over wages and employment. Mao Shengyong, deputy head of China’s National Bureau of Statistics, told reporters that ‘given the increasingly unstable and uncertain global situation, the imbalance between strong supply and weak demand remains acute.’

Chinese leaders have set a growth target of between 4.5% and 5% for 2026, lower than last year’s 5%. The International Monetary Fund recently raised its forecast for China’s 2026 growth by 0.2 percentage points to 4.6%, while projecting growth will ease further to 4.1% in 2027. Wei Li, head of multi-asset investments at BNP Paribas Securities (China), described the shift as a ‘significant transition.’

Image credit: Wikimedia Commons/by Ermell