Part policy, part political ritual, and part for show, China has begun preparing its 15th five-year Plan (5YP). It is intended as a comprehensive blueprint for all aspects of life, from economics to lifestyle.
It is primarily driven by the Party’s key priorities: control, national security, ideological guidance, and social stability. In this context, ‘social stability’ means nothing more than ensuring the continuity of the Party itself.
According to Xi, the 5YP must be formulatedscientifically.No doubt, Popper and Kuhn are turning in their graves at the use of ‘scientifically’ in this context.
As for trade, we remember the 13th 5YP (2016-2020). It was the first drafted with Xi in power. It explicitly stated that China would balance imports and exports.
A rational, generous, empathetic, and unbiased observer would interpret such a statement as a broad policy direction, an aim to reduce trade imbalances, and a signal that China was aware of global criticism regarding its persistent trade surpluses.
However, even the most neutral observer could not deny that, nine years later, the policy direction turned out to be quite the opposite. The gap between exports and imports has done nothing but grow since 2016.
It’s not that the stated goal failed to materialize; it’s that the goal—balancing exports and imports—was never truly intended to be achieved.
On average, over the past decade, for every $25 China imported, it exported $32. Imports rose by 6.3% annually, but exports grew even faster—at 6.8%. So much for the 13th Five-Year Plan, which had pledged to balance imports and exports.
This is likely to deepen tensions between the EU and China. In the first two months of the year, EU imports from China rose 18% in value but surged a striking 26% in volume—driven in part by a weaker yuan, which has dropped in synch the U.S. dollar
China exports over $200 million a month in 89 product categories—and in 1 out of 5, the top destination is the United States. Finding a substitute in the Global South for a $5 billion furniture market or $3 billion in kitchenware demand is simply unrealistic.
Below are the categories where U.S. demand leads.
While the sharp drop in the April PMI subindex for new exports drew widespread attention, we believe the current trade turmoil will severely impact the job market—signaled by the PMI employment subindex, now at a 14-month low.
This poses a far more serious concern for China than any executive order coming out of the White House.
The increase in exports to the UAE, Mexico, and Saudi Arabia combined (+$1.2 billion) was insufficient to offset the decline in exports to Russia, Brazil, and Türkiye (–$1.4 billion). For China, the Global South is no substitute for Western markets in the medium term.
Given the significant impact of trade turmoil on its vast export sector, China will roll out measures to stabilize employment, or so stated Zhao Chenxin from the NDRC on April 28.
Some of the measures appear to be typical band-aid solutions from China’s toolbox, such as encouraging companies to hire or increasing civil works. According to Li Qiang’s report during the Two Sessions in March, China’s public sector is in a hiring freeze. However, the trade turmoil triggered by Trump’s presidency might quietly reverse this policy.
Some media have suggested redirecting part of exports to the domestic market. However, this is unlikely in most cases. Take the town of Datang (大唐镇), for example, which produces over 1 billion umbrellas annually. While these umbrellas are priced at 5 yuan for the domestic market, they are sold at 18 yuan FOB for the United States, which buys over 65 million umbrellas from China each year. The domestic market not only cannot absorb this volume of production but also cannot support the 4:1 price difference between export and domestic prices.
Marriage statistics offer insight into social structures, but they are not a direct proxy for fertility. While historically there has been a strong link between marriage and childbirth, that connection is increasingly shaped by evolving personal choices. In China, declining marriage rates probably don’t explain the full decline in birth rates.
The curse of the hukou system has made marriage bureaucratically cumbersome in China. However, starting May 10, the government will ease this by allowing couples to complete marriage paperwork without needing to return to their hukou-registered place of residence.
Recent market studies predict a modest annual growth of just 0.3% in China’s beauty segment, a rate so sluggish it borders on stagnation. While the beauty sector’s relevance as a barometer of consumer sentiment is debatable, the decline in consumption is undeniable—this trend is further reflected in the drop in imports within the category. Imports have fallen by 44% in volume from their peak in 2020
Quant professionals often engage in highly complex derivatives trading, where the underlying math can be so intricate that it’s beyond the grasp of most traders. For instance, a quant might determine that a rise in cotton prices could lead to an increase in the price of plastic bottled water, driven by a derivative contract that groups cotton with PET, since PET is used in synthetic fibers.
The same happens with supply chains. The different steps a final product takes through its supply chain are too complicated for policymakers, who often discover the effects only after a deeper analysis of impromptu decisions. China countered Trump’s blanket tariffs with its own blanket tariffs. Now, China has decided to grant exemptions from import tariffs for some aircraft parts, including jet engines, which its national champion for building indigenous airplanes, COMAC, does not have.
In the first quarter of 2025, China imported 95,000 vehicles, down 39% from a year earlier. Full-year imports are expected to fall below 500,000 units, a steep drop from 1.24 million in 2017.
A recent report from the OECD and the EU Intellectual Property Office says the expansion of trade routes under the Belt and Road Initiative (BRI) is tied to the movement of counterfeit goods. That may be true, but we think the jump in counterfeit seizures through postal and courier services is more about the boom in Chinese e-commerce platforms than the BRI itself.
For years, Germany’s trade balance with China moved independently from that of the other 26 EU member states combined. But since 2019—driven largely by a decline in German car exports—the deficits have become virtually perfectly correlated.
Since Xi took power, Germany’s exports to China have grown at an average annual rate of 3%, while the other EU member states saw 5%, albeit with recent slowdowns. In 2013, Germany’s exports made up half of the EU27 total; by 2025, they are expected to drop below 40%.
The modest growth in exports from the rest of the bloc is unlikely to offset Germany’s decline, leaving a significant gap in EU-China trade.
As expected, EU imports from Vietnam increased by 28% in the first two months, while exports decreased by 6%. As a result, the EU trade deficit surged to €8.8 billion, up from €6.4 billion a year earlier.
EU trade in services has been damaged by the lack of access to Russian airspace, which has significantly increased flight times and operational costs, ultimately reducing profits and weakening European airlines’ competitiveness compared to their Chinese counterparts.
The new Europe–China routes launched in 2025 are all operated by Chinese airlines, except for Air Serbia. Air Serbia is allowed to fly to Russia, including on routes connecting to China.
The current turmoil with China evokes memories of the early ’90s, when Spaniard Ignacio López de Arriortúa rose to the top at GM and VW. Known for his radical cost-cutting approach, López was infamous for pushing suppliers to the brink with steep price cuts. Many suppliers felt his tactics went beyond tough negotiations—stripping away margins and intellectual property, with accusations of outright theft.
After a severe car accident in 1998, López retired following a long recovery. Four years later, China joined the WTO. López is still referenced in Chinese procurement textbooks, though opinions remain divided. While some praise his cost-cutting methods, others warn that such pressure on suppliers can backfire. His tactics are occasionally cited in discussions of price wars (e.g., BYD vs. Tesla), but with caution: López’s approach could have unintended consequences.
Rare earth elements are not that rare—but understanding how they’re traded, processed, or priced? Well, that is rare. That’s why we can’t help but recommend this excellent newsletter. From its current issue:
MOFCOM must find a way to distinguish among the 307 million pieces of NdFeB magnets China exported to the U.S in 2024 (as per statistics of USITC), which ones were likely to be used by U.S defense contractors. Good luck with that
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