Current trade turmoil could severely damage China’s economy. For years, China’s leadership has responded with little more than political buzzwords in defense of multilateralism. Even as global decoupling pressures grew, Xi’s China chose deferral over reform — year after year.
Trade-wise, despite mounting tensions, China’s posture toward the U.S. and EU has barely shifted throughout Xi’s tenure — a fact clearly reflected in the numbers.
Other than issuing harsh rhetoric against Trump’s erratic trade policies, Xi’s China has yet to show a clear plan. Our estimate: it will continue kicking the can, as it has been doing for years
“The philosophy behind China’s economic model is pure mercantilism. They make a virtue of export surpluses and accumulating foreign exchange reserves. That’s what’s wrong.” — George Magnus
In 2024, China posted a whopping trade surplus of nearly $1 trillion. Over the past twelve months, that figure climbed to $1.08 trillion. As usual, China just kicked the can further down the road.
Chinese claims of resilience reflect confidence in centralized crisis management and long-term restructuring — but we believe they underestimate the pain a rapid decoupling could bring. Export sectors employ tens of millions, and a sudden drop of exports could trigger unemployment with implications for social stability. The impact could be severe in some areas, given the uneven distribution of export hubs and the geographic clustering of many industries.
The reality would likely fall somewhere between ‘manageable’ and ‘devastating,’ depending on the pace of decoupling and China’s policy response, as well as those of others, such as the U.S. and EU.
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So much for solidarity: China’s surplus widens across its ‘Global South’ circle. See the additional surplus extracted compared to a year earlier
While the world stays distracted by the U.S. president’s bizarre and constant shifts, China quietly sticks to its playbook—steadily racking up trade surpluses, the only thing that matters.
Surplus hits $1.1 trillion over 12 months.
Exports to the European Union increased by 4% compared to the first quarter of 2024. However, imports from the bloc declined by 6%. The trade surplus rose to $64 billion, up from $55 billion a year earlier.
So much for Total Factor Productivity. No wonder it was a hot topic at China’s Third Plenum last July.
The linear decline since the 2015 peak raises concern.
According to data released by China’s National Bureau of Statistics for the first quarter of 2025, the nationwide per capita disposable income reached ¥12,179, representing a nominal year-on-year growth of 5.5%. However, the median per capita disposable income stood at ¥9,939, indicating that half of the population earns approximately 18% less than the average.
The median income grew at a slower pace of 5.0%, compared to the 5.5% increase in the average. This divergence suggests a widening income gap, as higher-income groups continue to see relatively stronger gains.
On April 16, China disclosed its Q1 2025 GDP, totaling ¥31.88 trillion. Nominal growth stands at 4.6%. Due to a generalized drop in prices, this yields a real growth of 5.4%. Compare with SOAPBOX prediction.
SOAPBOX nailed it!
Five years ago, a SAFE policy note quietly laid the groundwork for the rise of platforms like SHEIN and TEMU.
While no direct cash subsidies are involved, the policy framework around cross-border ecommerce exports functions as a kind of regulatory subsidy. Traditionally, exporters must repatriate the full value of goods declared at the time of shipment, and any discrepancies between declared and received amounts can delay tax rebates or trigger compliance issues. In contrast, cross-border ecommerce firms operating through overseas warehouses are granted greater flexibility.
These firms can first ship products abroad and later repatriate only the revenue from actual sales—even if that amount falls short of the value stated in the original export declaration. Moreover, they are allowed to offset overseas operating expenses—such as warehousing, logistics, and local taxes—against their export proceeds before converting the net income into renminbi. While they must still report these transactions under existing foreign exchange rules, the process is more tolerant of mismatches and delays.
This leniency reduces the friction and financial pressure typically associated with international trade. For ecommerce exporters, particularly platforms like SHEIN and TEMU or the many small suppliers they rely on, this flexibility significantly lowers the barriers to global operations.
In practice, this is a real subsidy—one delivered not through direct fiscal transfers, but through regulatory privilege. It quietly tilts the playing field in favor of cross-border ecommerce, reinforcing China’s broader strategy to push exports through new digital trade channels.
UPS, FedEx, and others will apply a surcharge of $0.64 per kg to all U.S.-bound parcels from mainland China and Hong Kong. It seems Amazon will join the initiative too.
According to China Customs, TEMU, Shein, and similar e-commerce platforms saw their shipment volumes to the U.S. drop by 3% in Q1 2025, following years of double-digit growth.
In March alone, the decline accelerated to 13% compared with the same month in 2024.
In Q1 2025, exports of BEVs fell to $6 billion, down from $8 billion a year earlier. Alternative markets failed to offset the shortfall caused by the EU’s punitive measures, with shipments to the bloc plunging 44%. Hopes for growth in Brazil will have to wait — exports of pure electric cars there tumbled by a staggering 77%
(Note: Tesla did not begin deliveries of the refreshed Model Y produced in Shanghai to international markets until April 14, missing all of Q1.)
Meanwhile, China Customs revised its electric vehicle classification to differentiate between units with and without VIN codes. Those without VINs now represent 6% of BEV exports; half to the EU.
Both exports and imports between China and Russia declined in the first quarter of 2025, signaling mounting pressure on a relationship long portrayed as rock solid. While official rhetoric remains upbeat ahead of Xi’s visit to Moscow on May 9, the latest data points to a cooling in bilateral flows, raising questions about the resilience of trade ties.
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