While we are not political analysts, it is hard to escape the conclusion that, for China’s leadership, regime security is the non-negotiable priority and everything else is instrumental. Economic constraints shape tactics, not goals. They trigger top-down switches in instruments, not changes in ends. The toolkit is coercive and discretionary, and, at the margin, ideology often trumps efficiency: when security and growth collide, security wins. With limited transparency, weak rule-based constraints, and tight propaganda control, policy can pivot quickly while the Party’s objectives remain unchanged.
When Xi took power in 2013, we expected the contribution of net exports to real GDP growth to decline; we thought that was settled policy. We were wrong. By our estimates, the average contribution in 2018–2023 was about three times that of 2013–2018, and in 2023–2024 it has been about 1.25 times the 2018–2023 pace (in percentage-point terms). That is a change in tactics, not a change in ends. Under these conditions, the only reliable way to read China’s trade policy is to watch what it does, not what it says it will do.
In H1 2025, Europe imported sharply more from China, volumes up 14.2%, values up 13.3%. The euro’s 0.6% rise against the yuan made goods slightly cheaper, but the overall drop was 0.9%. Put together, Europe bought more goods at lower unit prices than a year ago, showing China is pushing exports, likely fueled by overcapacity and cut-throat domestic price competition. For some time now, China has been exporting deflation.
Germany accounts for about 80% of the EU’s car exports to China. In the first half of 2025, Germany’s exports to China fell 60% from their 2022 peak. Exports from the rest of the bloc also declined, down 41% from their own 2022 peak.
In value terms, Germany has lost around €7 billion in car exports to China in H1 2025 compared with three years ago. For the rest of the EU, the drop is about €1 billion. Taken together, these figures show a dramatic downturn not only for Germany but also for the rest of the EU, with particular pressure on the Bratislava auto hub in Slovakia
One year ago, hybrids of all types made up 16% of the value of the EU’s electric vehicle imports from China. In 2025, that share has climbed to nearly 40%. Overall imports of electric cars from China are down 28% from their 2023 peak, but demand for plug-in hybrids has kept total imports flat compared with the first half of 2024, cushioning the decline. Policies do matter.
Exports have fallen below 2018 levels. Shipments of cognac in packaging larger than two litres now account for barely 4% of the total.
Overall, EU agri-food exports to China are down 36% from their 2021 peak. In 2025, they are on track to return to levels last seen in 2019.
Someone should book a coffee with Christophe Hansen, the current Agriculture Commissioner, and his predecessors Janusz Wojciechowski and Phil Hogan. Invite them to a candid, on-the-record conversation about agri-food and China. The discussion would be lively to say the least.
Not long ago, China dreamed of transporting over 1 million tons to the EU via its much-touted railway initiative. That ambition has faded. Volume and value now account for roughly 2% of EU imports from China, a decade after the first train departed Yiwu in Zhejiang province for Madrid.
This year, volume is flat, while the value per unit of volume has fallen 12%. The Russian invasion of Ukraine has had a strong impact, yet Xi supports Putin even at the cost of economic damage to China, showing a willingness to accept self-inflicted losses rather than change his political stance.
A 1 kg box containing two dozen phone cases illustrates the kind of price-to-volume ratio typical of goods shipped from China to the EU by rail.
Tom Wilson reports in the Financial Times on how Iranian (and Russian) crude oil reaches China. We have often covered in SOAPBOX the practice of Iranian crude entering China disguised as “imports from Malaysia.” Despite Malaysia reporting no crude exports to China, China Customs records about 1.2 million barrels per day from Malaysia, without explanation. In fact, this oil is Iranian, and Iranian media openly report crude exports to China.
As we noted in previous issues, China treats these shipments under the bonded-warehouse regime. In other words, while the oil is physically inside China’s borders, it has not entered Chinese customs territory. This legal construct is what makes the bonded-warehouse system work.
Using SAFE data up to June as a gauge, outbound tourism in China appears to have returned to its 2015 peak level. In the first half of 2025, it was 5% higher than in the same period of 2024. The summer season is not yet included in the SAFE data, but preliminary indications suggest strong growth.
Using SAFE data up to June as a gauge, inbound tourism in China appears to have returned to its 2015 peak level. In the first half of 2025, it was 46% higher than in the same period of 2024.
China’s nominal GDP growth has slowed sharply from the double-digit averages of the 2000s and early 2010s. Employment elasticity, meaning how strongly jobs respond to growth, is lower than in the past. In other words, today’s growth is less labor-intensive: for example, the photovoltaic sector can deliver far more gigawatts of capacity with far fewer employees than it once required. Each percentage point of GDP growth now generates fewer jobs.
Nominal growth also lags real growth, reflecting weak consumption, industrial overcapacity, and a policy stance that still emphasizes the supply side. At the same time, toy models can be made to say almost anything. The outcomes depend on assumptions about new labor market entrants and the elasticity chosen by the analyst, which makes the results highly adjustable at will, almost like “tell me what you want to hear.” Reality will decide; simulations will not help much.
We expect Party stubbornness on the supply side to prevail, and the Fourth Plenum to formalize a Five-Year Plan already foreshadowed in the Third Plenum of July 2024. Still, we are curious whether China’s many capable economists will present different scenarios to the Party leadership, or whether they will simply be asked to deliver the model that shows 5% unemployment by adjusting the elasticity. What happens inside those rooms remains unknown.
The EU–Vietnam Free Trade Agreement (EVFTA) entered into force in August 2020. Since then, mutual trade has reached about €300 billion over five years, a growth of 74%
The balance, however, is unequal. EU exports to Vietnam rose 34%, while imports from Vietnam surged 84%, giving Vietnam earnings of €186 billion over the period, equivalent to 43% of Vietnam’s GDP in 2024.
Looking ahead, we estimate the EU’s trade deficit with Vietnam will widen to €50 billion in 2025, up from €43 billion in 2024, an increase of 16%. And for geopolitics watchers, it is worth noting that U.S. imports from Vietnam are more than double those of the EU.
According to a recent IMF paper, China’s industrial policy costs 4% of GDP each year, an exceptionally high figure by global standards, highlighting the scale of state support. Interestingly, misallocations from this policy reduce productivity by 1.2%, something we often mention at SOAPBOX, and cut GDP by 2%
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