China’s growing trade surplus: why exports are surging as imports stall

Prepared by Alexander Al-Haschimi, Natálie Dvořáková, Julien Le Roux and Tajda Spital

Amid US-China trade tensions and a shifting geopolitical context, China’s widening trade surplus, particularly in goods, has attracted considerable attention. Before the COVID-19 pandemic, Chinese exports and imports tended to move in tandem. Since then, however, a clear decoupling has taken place: goods exports have risen well above their pre-pandemic trend, while goods imports have stagnated below their 2021 level (Chart A). This divergence between export and import dynamics has resulted in a large trade surplus. For China’s trading partners, the implications are multifaceted: stronger competitive pressures from Chinese exports in their domestic markets, weaker Chinese demand for their goods, and increased competition in third-country markets. These trade dynamics reflect multiple factors. Structural policies promoting self-reliance – notably the “Made in China 2025” strategy – have reduced dependence on foreign inputs, given domestic producers a boost and curbed imports.^[1] At the same time, falling export prices and non-price competitiveness have supported exports.^[2] This box shows how weak domestic demand in China, typically associated with subdued imports, may be an additional factor in explaining strong exports – an aspect that is often overlooked.

Chart A

China’s goods imports and exports

(volume; indices, 2019 = 100)

The weakness in China’s imports can be explained by a combination of cyclical and structural factors. Since 2021 the housing downturn has depressed imports. It has weighed on real estate investment, an import-intensive sector, and eroded household balance sheets, curtailing consumer demand. This cyclical slowdown is reflected in particularly weak imports of consumer and intermediate goods (Chart B, panel a). Structural factors, linked to the “Made in China 2025” strategy, have also contributed. A reconfiguration of trade partners has added to these shifts. Imports from advanced economies, notably the EU and the United States, have declined, while imports from emerging markets have either increased modestly or remained stable (Chart B, panel b). These patterns may be influenced by a host of factors beyond the scope of this box, but trade policies may also have played a role. Chinese non-tariff barriers are estimated to explain roughly half of the decline in Chinese imports from the United States during the 2018-19 trade war (Chen et al., 2023). In addition, the United States imposed export controls on advanced semiconductors in 2022 and only recently eased them, which further constrained inflows. By contrast, China’s effective tariff rates have continued to fall, suggesting tariffs alone cannot explain the slowdown.

Chart B

Chinese imports by good category and origin

a) By category of goods	b) By origin
(deviation in import volumes between December 2021 and August 2025; indices 2021 = 100)	(deviation in import volumes between December 2021 and August 2025; indices 2021 = 100)

Empirical evidence also supports the view of a gradually diminishing import intensity of China’s economic activity. A rolling window estimation shows that the long-run elasticity of China’s imports to domestic demand has declined significantly below unity since the pandemic. This is despite the elasticity having hovered around unity for most of the past two decades, apart from a temporary drop during the global financial crisis (Chart C). The reduced sensitivity of imports to demand may reflect the more structural changes mentioned above, likely reinforced by the transition to a greener economy with reduced fossil-fuel imports. Taken together, these forces point to a lasting shift in China’s import behaviour.

Chart C

Long-run elasticity of imports to GDP – rolling window estimate over 40 quarters

(coefficient estimates)

Turning to the dynamism in Chinese exports, several factors have contributed to their recent strength. In the aftermath of the pandemic, exports benefited from pent-up global demand. More recently price competitiveness has played an important role, with export prices having declined persistently since mid-2023 (Chart D). At the same time, ongoing industrial upgrades, technological advancements and improvements in product quality have enhanced non-price competitiveness. Established trade relationships and China’s integration into global value chains have further strengthened its market position and enabled it to expand market shares abroad (Al-Haschimi et al., 2024b).

Chart D

Prices of China’s goods exports and imports

(moving annual average; January 2020 = 1)

Subdued domestic demand, along with weak export prices, has recently played a central role in China’s export dynamics. The 2021 domestic real estate crisis sharply curtailed household demand. At the same time state-led manufacturing investment, aimed at stabilising growth under China’s supply side-oriented fiscal approach, offered little direct support to consumption. Excess capacity has led firms into price wars. This has eroded profit margins and discouraged spending in a deflationary environment with significant labour slack – prompting firms to redirect sales toward foreign markets.^[3] This shift reflects the “vent-for-surplus” theory of international trade, which posits that a demand-driven decline in domestic sales generates excess capacity that can be redirected abroad.^[4] The mechanism assumes fixed investment in the short term, which is particularly relevant in China, where investment is often guided by central planning. To expand abroad, firms must gain competitiveness in foreign markets. They typically do so by reducing short-run marginal costs and prices, or by accepting narrower profit margins, and in some cases even losses.

The “vent-for-surplus” theory helps explain recent trade patterns. Proxies for real domestic sales indicate that, since the pandemic, real exports have outpaced domestic sales, resulting in a widening gap between the two (Chart E, panel a). Our analysis finds that export growth is strongest in sectors with underperforming domestic sales growth. Since 2022 export volumes in sectors such as motor vehicles and steel have risen by about 75% (Chart E, panel b), suggesting that firms have increasingly shifted sales to foreign markets. Domestic absorption of excess capacity through lower prices has been constrained by weak demand, as the housing downturn continues to weigh on consumer confidence. By contrast, in sectors with outperforming domestic sales growth, mainly related to technology goods, export volumes have largely moved in line with domestic sales, rising by about 30% since 2022 (Chart E, panel c). Export prices have declined across all sectors, with more pronounced declines in sectors recording stronger export growth.

Chart E

Real domestic sales and exports in China

a) All sectors	b) Sectors with under-performing domestic sales	c) Sectors with outperforming domestic sales
(index, May 2017 = 1; three-month moving average)	(index, May 2017 = 1; three-month moving average)	(index, May 2017 = 1; three-month moving average)

Weak domestic demand appears to be the missing link in explaining China’s strong exports to Europe – more so than tariff-related trade diversion. Escalating trade tensions between the United States and China might result in a further diversion of Chinese exports to Europe. However, the rise in China’s exports to the EU predates the latest tensions and coincides instead with the onset of weakness in domestic demand in China. In the fourth quarter of 2024 the average monthly value of domestic sales was around four times higher than total exports and over 28 times larger than exports to the United States. This suggests the pool of goods that could be redirected to the EU is much broader than trade data alone would suggest. Redirecting even a small share of domestic sales abroad could boost overall exports – including to the EU – more than a sizeable diversion of exports from the United States.^[5]

References

Al-Haschimi, A. and Spital, T. (2024a), “The evolution of China’s growth model: challenges and long-term growth prospects”, Economic Bulletin, Issue 5, ECB.

Al-Haschimi, A., Emter, L., Gunnella, V., Ordoñez Martínez, I., Schuler, T. and Spital, T. (2024b), “Why competition with China is getting tougher than ever”, The ECB Blog, ECB, 3 September.

Almunia, M., Antràs, P., López-Rodríguez, D. and Morales, E. (2021), “Venting Out: Exports during a Domestic Slump”, American Economic Review, Vol. 111, No 11, pp. 3611-62.

Boeckelmann, L., Emter, L., Gunnella, V., Klieber, K. and Spital, T. (2025), “China-US trade tensions could bring more Chinese exports and lower prices to Europe”, The ECB Blog, ECB, 30 July.

Chen, T., Hsieh, C.-T. and Song, Z.M. (2022), “Non-Tariff Barriers in the U.S.-China Trade War”, NBER Working Paper Series, No 30318, National Bureau of Economic Research, Inc.