Two weeks ago, we argued that the new EU-China Trade and Investment Consultation Mechanism risked becoming another mirage, an exercise in dialogue without measurable results. The first trade figures released since that meeting provide no sign of rebalancing. Eurostat shows the EU’s goods deficit with China widening by almost 10% in January-May, while Chinese customs data show exports to the EU reaching a new first-half record.
We remain sceptical that the meetings ahead of the October review will deliver meaningful results. Meanwhile, the numbers are moving away from, not towards, rebalancing. Annualised, the EU’s goods trade deficit with China is now running at close to 2% of EU GDP.
In our previous forecast, SOAPBOX expected China’s exports to the EU to reach a new first-half record of CNY 2.12 trillion. GACC data released on July 14 put the actual figure at CNY 2.16 trillion, CNY 45 billion above our forecast and 12.6% higher than the previous record set in 2025.
China’s export surge into the EU did not merely persist. It intensified, pushing the first-half total beyond an already record-breaking forecast.
The first-half surplus reached $576 billion, down 1.9% from the unusually high level recorded a year earlier. But the scale remains extraordinary. China accumulated a $1.187 trillion surplus over the latest 12 months, while the January–June pace annualises to around $1.152 trillion.
China’s trade surplus in goods with the EU kept widening in the first half of 2026.
According to GACC data in renminbi terms, China’s exports to the EU increased by 12.7% year on year, while imports from the bloc rose by only 4.9%. That pushed China’s goods surplus with the EU to CNY 1.225 trillion, up from CNY 1.025 trillion a year earlier. That is an increase of about CNY 200 billion, or almost 20%. On a rough euro conversion, it is equivalent to around €0.9 billion per day.
Goods exported from China in June are still at sea or will only reach EU ports in the coming weeks. Many will not clear customs until August, and Eurostat will not publish those trade data until around mid October. EU policymakers are therefore likely to keep seeing disappointing trade figures for several more months.
GACC data show China’s exports to Germany rising by 14.8% in the first half of 2026, to CNY 468 billion. Imports from Germany fell by 1.7%, to CNY 313 billion.
The result was a sharp widening of China’s goods surplus with Germany, from CNY 89 billion to CNY 155 billion. That is an increase of CNY 66 billion, or 74%, compared with the first half of 2025.
The H1 surplus was equivalent to roughly €111 million a day.
EU imports of electric and hybrid cars from China rose by 91% in value in January–May 2026. Electric-car imports still increased strongly, by 45%, but hybrids grew far faster. Plug-in hybrids were up 153%, while non-plug-in hybrids rose 186%.
The result was a reversal in the composition of imports. Electric cars accounted for 61% of the combined value in January–May 2025, but only 47% one year later. Hybrids increased their share from 39% to 53%, overtaking fully electric cars for the first time in this series. Within the hybrid category, plug-in models remained dominant, representing 65% of import value.
China is broadening its export push into the EU. Imports of battery-electric cars rose by 45% year on year, but remain almost 30% below their 2023 peak. The current surge is being driven mainly by hybrids, with growth spreading across the full range of electrified powertrains. Even so, combined imports of electric and hybrid cars from China reached a new January–May peak by value. Up to to €7.7 billion from €5.8 billion in January-May 2023.
Hybrids may appeal to consumers not yet ready to switch fully to electric, and for now they also face lower EU import tariffs than Chinese battery-electric cars. That advantage may not last, however, as higher tariffs on Chinese hybrids are now a possibility.
On the current trajectory, we estimate that the EU will import nearly €20 billion worth of electric and hybrid cars from China in 2026, more than ten times the value imported five years earlier.
China’s exports to the UK increased by 9.4% in the first half of 2026, while imports fell by 3.8%. China’s goods surplus with the UK consequently rose by 13.2% to CNY 255 billion.
That was 64% larger than China’s goods surplus with Germany, even though China exported much less to the UK, CNY 317 billion compared with CNY 468 billion to Germany. The difference reflects the much smaller flow of goods from the UK to China.
The UK is a services powerhouse, but even that provides only a modest counterweight. Its services surplus with China offsets roughly one-sixth of the goods imbalance.
For the first time since the first half of 2022, China’s nominal GDP growth moved back above real GDP growth. The gap remains modest and is not enough to conclude that China has entered a broad reflationary phase. Nominal GDP grew by 5.0%, while total retail sales of goods and services increased by only 2.7%, suggesting that the improvement was not matched by equally strong household demand.
China’s retail sales were equivalent to 35.75% of nominal GDP in the first half of 2026, the lowest ratio in this series and down from 39.82% in 2021.
This does not measure the share of household consumption in GDP. It does show that retail sales are losing ground relative to the overall nominal economy.
With domestic demand still insufficient, China is extracting growth from every available trade channel, including categories once expected to fade as the economy matured. Among them is the old model of imported components, domestic assembly and re-export.
The shift deserves attention because official commentary has traditionally presented the rising share of general trade as evidence of China’s economic upgrading. In the first half of 2026, that share moved sharply in the opposite direction.
Apart from increased supplies from Brazil, China did not solve the Gulf shock by finding alternative oil. It absorbed the disruption by buying less, refining less, exporting less fuel and drawing on vast stockpiles.
The scale is difficult to overstate. China’s May–June import shortfall was roughly comparable to Brazil’s entire daily crude oil production.
China’s integrated-circuit trade provides a broad, though imperfect, indication of how the semiconductor supply chain is changing during the AI investment boom. In the first half of 2026, export value rose by 88.7%, while export volume increased by only 7%. Import value rose by 50.1%, against an 8.1% increase in volume. The firm conclusion is that the surge occurred predominantly in value rather than in the number of chips traded.
-
For exports, this may reflect higher semiconductor prices and a shift towards more valuable products, including memory, logic and advanced packaged chips, as well as processing and re-export flows.
-
For imports, it indicates that the average customs value of the chips entering China increased sharply, which may be compatible with stronger demand for expensive computing components.
The data cannot identify how much of the increase was directly caused by AI. Memory prices, product mix, exchange rates, customs classification and processing trade may also have contributed. Even with those qualifications, the unusually wide gap between value and volume makes the figures a useful indicator of the broader semiconductor cycle associated with AI investment.
Twenty days before Russia invaded Ukraine, China and Russia declared that their friendship had “no limits”. Their commercial relationship has since expanded substantially, with bilateral goods trade reaching a new first-half record of US$134 billion in 2026.
The Council of the European Union’s latest assessment describes China’ssupport as a crucial enabler for Moscow. Between 2021 and 2025, Russia accumulated a goods trade surplus with China of about US$100 billion.
