Despite renewed trade tensions with the U.S. following Donald Trump’s return to the presidency, China posted a record trade surplus in 2025: exports rose to $3.77 trillion (+5.5% year on year), while imports remained stable at $2.58 trillion, resulting in a positive trade balance of $1.19 trillion, the highest ever recorded.
But how is this possible when exports to the United States fell by 20% year on year to $420 billion, and imports from the United States declined by 14.6% to $139.7 billion?
First, market diversification has played an important role. As Reuters points out, China has shifted its focus from the United States (the world’s largest consumer market) to Southeast Asia, Africa, and Latin America, a strategy that appears to have paid off. At the same time, China has restructured its supply chains through third countries, helping sustain export growth despite the trade war.
So, does this mean that the Chinese economy is performing extraordinarily well?
If we compare the performance of the CSI 300 or Hang Seng with that of the S&P 500 and Nasdaq over the past year, it might appear that China is thriving. However, a longer-term view, say five years, shows a different reality.
It is also worth noting that, although exports remain an important part of the Chinese economy, the country’s performance beyond trade is less impressive.
Specifically, one of the key objectives — boosting domestic demand — remains unachieved, as retail sales have barely grown and, when adjusted for seasonality, have fallen for two consecutive months: -0.4% month on month in November and -0.1% in December. Year-on-year retail growth slowed to +0.9% in December, bringing the quarter’s average to +1.1 %. Adding further pressure, investment fell by 3.8% year on year in 2025.
Official GDP data shows that the economy grew by 5% in 2025, as predicted, but growth slowed to 4.5% in the fourth quarter, indicating that boosting domestic demand will be essential in 2026. Without this, even official growth figures could fall well short of expectations. This likely means that the government will have to cut interest rates and increase fiscal stimulus.
The new five-year plan, due in March, may formally emphasize consumption. Still, it is unlikely that the authorities will implement the deep reforms needed to revive growth and escape deflation truly. As a result, China’s growth model is unlikely to change dramatically, and its economic performance will continue to rely largely on trade.
This article was written by IL Contributors at investinglive.com.