China | Understanding China’s expanding trade surplus puzzle

Summary

In this report, we are trying to explain the puzzle of why China’ trade surplus has kept expanding in 2025 during the trade war by the US as presumably people believe exports should decline due to high tariffs.

Key points

• Key points:
• Export country’s substitution effect plays an important role to explain China’s rising exports growth.
• Front-loading still played a role to support China’s exports to the US during the trade war period, although we observed the whole-year exports to the US declined.
• China’s overcapacity issue particularly in the green economy sector pushed these products to be exported to foreign countries as the domestic market cannot consume all of them.
• Weak domestic demand and sluggish market sentiments are the main reason for weak imports growth in 2025.
• Imports substitution effect also plays an important role to explain weak imports.

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