Commentary

China’s challenge is no longer about exporting more efficiently, but about changing its role in the global economy, says Enodo Economics’ Diana Choyleva.

Vehicles and trucks for export wait for transportation from a port in Yantai in eastern China’s Shandong province on Jan 2, 2025. (Chinatopix via AP, File)

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04 Feb 2026 06:00AM

LONDON: China reported a record US$1.2 trillion trade surplus in 2025, an astonishing figure that has reignited debate over whether United States trade restrictions have failed. After years of tariffs, export controls and supply-chain pressure, China is still exporting more than ever.

To some, this looks like vindication, proof that Beijing has weathered the trade war and emerged stronger. But that conclusion mistakes adaptability for sustainability.

An economy that relies so heavily on selling to the rest of the world, especially one that is increasingly resistant, is not in a position of long-term strength.

There is no denying China’s short-term success. Exports to the US fell sharply by 20 per cent in 2025, yet total exports rose as China expanded sales to ASEAN, the Middle East, Africa and Latin America.

Chinese firms accelerated investment in Southeast Asia, shifting final assembly or partial production there while still supplying components and machinery from the mainland. In effect, China did not retreat from global trade; it re-engineered its routes.

This flexibility has blunted the immediate impact of US tariffs. It has also reinforced China’s central role in global supply chains, even as direct access to the US market narrowed.

From an operational perspective, this is a remarkable achievement. Few countries possess the industrial depth, logistics capacity, private sector agility and state coordination to adapt so quickly.

AN UNDERLYING IMBALANCE

Yet the trillion-dollar scale of the surplus points to an underlying imbalance. China is exporting aggressively because domestic demand remains insufficient to absorb its industrial capacity.

Excess production inevitably spills out and floods other markets with cheap goods. Large, growing trade surpluses are getting political pushback, and tolerance for China’s export-heavy model is wearing thin.

The United States, in particular, has moved beyond blunt tariffs towards a more structural response. Recent trade and economic agreements with ASEAN countries, like Thailand and Malaysia, reflect a concerted effort to tighten rules of origin and strengthen supply-chain transparency. The US is not seeking simply to tax Chinese exports, but to reduce China’s ability to reroute goods through third markets.

Europe is heading in a similar direction, amid intensifying concerns over Chinese overcapacity, state subsidies and market distortion. But tariffs are not straightforward when European manufacturers also have a large production capacity in China. In the case of electric vehicles, Europe has replaced anti-subsidy duties with price floors to be negotiated for each car model since January.

Still, governments increasingly view trade defence instruments, investigations and targeted barriers as risk management, not protectionism.

Taken together, these moves reinforce a reality that has been evident for some time: China’s export success faces diminishing returns in a global system that is fragmenting.

CHANGING CHINA’S ROLE IN THE GLOBAL ECONOMY

This is why China’s challenge is no longer about exporting more efficiently. It is about changing its role in the global economy from being primarily a supplier of goods to becoming a genuine source of demand.

The US’ central position in the global system has long rested on its ability to absorb exports from allies and rivals alike. If China wants to anchor its own sphere of influence across Asia, Africa and the Global South, it must play a similar role – not just producing for others, but buying from them.

That implies a strategic shift. One pathway lies in exporting production capacity rather than finished goods.

Today, China produces a large share of what it consumes, in line with its drive for self-reliance. But if it wants to act as a meaningful source of external demand, it could start by relocating lower-value and more labour-intensive manufacturing to less developed economies. Supporting their industrialisation would create the conditions for those countries to export back to China.

Over time, this would allow China to import more consumer and intermediate goods, rebalance trade relationships, and anchor its influence through demand, while retaining higher-value activities and control at the top of regional value chains.

Another lever is currency policy. A weak yuan supports exporters, but it suppresses household purchasing power. A stronger currency would increase Chinese consumers’ ability to import goods and services, travel, and invest abroad – precisely the adjustment needed to reduce dependence on external demand. With capital controls intact, inflation subdued and external balances strong, Beijing has room to tolerate and may even welcome gradual currency appreciation in 2026.

Such a shift would not be painless. It would challenge entrenched interests in export-oriented industries and force a reallocation of resources toward households and services. But the alternative of doubling down on surplus-driven growth in a more hostile global environment carries greater long-term risk.

WHAT CHINA SELLS TO OR BUYS FROM THE WORLD

For ASEAN, China’s surplus presents both opportunity and warning. Southeast Asia has benefited from supply-chain diversification, rising investment and export growth as firms adopt “China-plus-one” strategies.

But trade balances tell a more complex story. Much of ASEAN’s export growth depends on imported Chinese inputs, limiting domestic value capture and widening deficits with China.

The winners in this environment will be economies that use Chinese investment and trade links to climb the value chain – by building local supplier networks, skills and domestic demand rather than remaining assembly platforms vulnerable to geopolitical shifts.

For investors, the implications are clear. China’s manufacturing competitiveness is not disappearing, and its ability to adapt should not be underestimated. But political tolerance for chronic surpluses is eroding, and future trade friction will increasingly target structures, not just volumes.

Meanwhile, any serious move by Beijing to strengthen domestic consumption or allow greater currency flexibility would mark a meaningful inflection point for global markets.

China’s US$1.2 trillion trade surplus is a testament to resilience under pressure. But that alone does not resolve its underlying problems. Avoiding restrictions can sustain growth for a time; it cannot anchor leadership indefinitely.

The next phase of China’s economic story will be defined not by how much it sells to the world, but by whether it is prepared to buy.

Diana Choyleva is the founder and chief economist of Enodo Economics and a senior fellow at the Asia Society Policy Institute’s Center for China Analysis.

Source: CNA/ch