World

China’s $1.04 Trillion Trade Surplus Highlights Export Strength and Domestic Demand Weakness

By John Power

China’s trade surplus reached $1.04 trillion in the first ten months of the year, underscoring the country’s powerful export engine. The figure also signals structural weaknesses that could threaten China’s long‑term growth ambitions. While the export‑led model helped lift living standards since the late 1970s, the economy now faces diminishing returns. Even with record‑high exports driven by the AI boom, domestic demand remains chronically weak. Chinese households save more than their peers elsewhere, typically setting aside one‑third or more of their earnings. This high precautionary saving is partly due to a relatively weak social safety net, cultural attitudes, an undervalued currency and a struggling real‑estate market.

Government spending on healthcare, pensions and welfare accounts for only about 10 percent of GDP, far below the OECD average of roughly 23 percent. Household consumption sits at about 39 percent of GDP, compared with 68 percent in the United States, according to the Hinrich Foundation. Alicia García Herrero, a senior fellow at Bruegel, told Al Jazeera that an export‑dependent model means Chinese households subsidise global consumers, leaving families with weaker wage growth, deflationary pressures at home and a smaller share of the country’s economic gains.

Exports grew 35.2 percent year‑on‑year in October, buoyed by strong demand for semiconductors and automatic data‑processing machines. The latest trade figures put China on track to exceed its record full‑year surplus of $1.2 trillion in 2025. However, reliance on trade has also exposed the economy to growing discontent abroad. Critics argue that China’s state‑subsidised export model abuses fair‑trade norms. Earlier this month, the European Union announced it would cap imports of Chinese hybrid electric vehicles at 350,000 units annually to counter China’s “overcapacity”.

Carsten Holz, a professor of economics at the Hong Kong University of Science and Technology, said the growing reliance on exports to maintain growth is unlikely to be sustainable. He warned that the world is too small to absorb all of China’s excess manufacturing capacity and that other countries will eventually impose barriers similar to those China has used.

The limits of China’s economic model have become more visible over the past decade. In March, Beijing set an economic growth target of 4.5‑5 percent, its lowest since 1991. While such growth would be enviable for most advanced economies, it marks a marked slowdown from the double‑digit increases common in the 1990s and 2000s. On a per‑capita basis, China’s GDP is about one‑sixth the size of the U.S. economy and 40 percent of Japan’s. President Xi Jinping has expressed an ambition to double the size of the economy by 2035, a goal that some economists believe will be difficult to reach at current growth rates.

Policymakers have acknowledged the need to boost domestic demand. In July, Beijing announced its first five‑year plan aimed specifically at boosting consumption, targeting 60 trillion yuan ($9 trillion) in sales of consumer goods by 2030, up from a record 50.12 trillion yuan ($7.5 trillion) last year. So far, such efforts have produced meagre results. Retail sales grew just 1.1 percent year‑on‑year in September, up from 0.6 percent in August. Lynn Song, chief economist for Greater China at ING, said more policy support is expected, but the focus may remain on tech self‑reliance and industrial upgrading. She added that China’s consumption will naturally play a larger role in growth as more households enter the middle class, a process that takes time.

Bruegel’s García Herrero noted that China’s growing trade surplus reflects its competitiveness in technology but also points to a “stark two‑speed economy”. She said Beijing publicly insists on more balanced trade, yet its industrial policies continue to channel capital into manufacturing and self‑reliance rather than household demand. Without meaningful structural reforms to boost household income and social welfare, this reliance on exports is unsustainable, especially as trading partners like the U.S. and EU push back with tariffs and trade curbs.