Paper: GS – II, Subject: International Relations, Topic: India and Its Neighborhood, Issue: China’s Trade Surplus.
Context:
China’s recent achievement of surpassing a $1 trillion trade surplus in the first eleven months of 2025.
Key Takeaways:
Why does China have such a huge Surplus:
Manufacturing Dominance:
- China’s tight, hyper-efficient supply chains built over decades = unbeatable cost structures.
- Wide dominance in:
- Electronics
- EVs & batteries
- Solar panels
- Machinery
- Consumer goods
China still accounts for 31% of global manufacturing output (UNIDO, contextual stat).
Weak Domestic Consumption:
- Household spending has not recovered post-COVID.
- Youth unemployment & property market slump weak confidence.
- High-savings rate low household demand firms must export to survive.
Value-add: “China’s trade surplus is partly a reflection of demand deficiency at home.”
Depressed Commodity Prices (Import Bill Falls):
- Imports of iron ore, oil, copper etc. are weak due to a sluggish construction & real-estate sector.
- Lower imports artificially boost trade surplus.
Diversification of Markets:
- US tariffs reduced exports to America, but China compensated by expanding sales to:
- ASEAN (No.1 trading partner), Middle East, Africa and Latin America.
Currency Management:
- A relatively weak yuan (de facto controlled) makes Chinese exports more competitive.
- But reduces purchasing power imports stay weak.
Addressing the Imbalance: IMF Recommendations:
- Responding to the Chinese trade surplus, the International Monetary Fund (IMF) linked China’s rising exports and growing trade imbalances to a “real depreciation of the yuan.”
- The IMF urged Chinese policymakers to adopt bolder stimulus measures to boost consumption, which would lift consumer prices, while allowing more exchange rate flexibility.
China’s $1-trillion trade surplus reflects not just export strength but deep domestic weaknesses such as weak consumption, property stress, and falling imports. Overcapacity is pushing Chinese firms to export more, triggering global tariff barriers and diversification efforts. The surplus thus reveals a growth model that is globally dominant yet increasingly fragile at home.
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