With its domestic, investment-led growth model broken, China has pivoted to an export-heavy strategy. This significant shift creates new vulnerabilities as it must fight for a shrinking pie of global demand amid rising protectionism.
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Despite a property downturn subtracting nearly 1.5 percentage points from GDP, China's economy is buoyed by a hyper-competitive manufacturing sector. With cost advantages of 20-40% in key high-tech sectors, its export growth is outpacing global trade, creating a resilient but unbalanced economic picture.
China is restricting exports of essential rare earth minerals and EV battery manufacturing equipment. This is a strategic move to protect its global dominance in these critical industries, leveraging the fact that other countries have outsourced environmentally harmful mining to them for decades.
China's trade surplus is on track to exceed $1.2 trillion, a scale unprecedented in modern peacetime history. This massive imbalance, driven by a strategy of import substitution, raises critical questions about whether the global economy can absorb these surpluses without significant political and economic backlash.
China's economy presents a stark contrast: a collapsing domestic property market versus a remarkably resilient export sector. Despite tariffs, exports remain strong because China continues to improve product quality and price competitiveness, maintaining global manufacturing dominance.
China's economic model, driven by internal provincial competition, creates massive overcapacity. This is intentionally turned into an asset by dumping subsidized products (like EVs) into foreign markets below cost. The goal is to eliminate foreign competitors, create dependency, and convert domestic economic chaos into international power.
According to IMF data analysis, China's manufacturing surplus as a share of its GDP has surpassed 2%, exceeding the levels of Japan and Germany during their most dominant export eras. This indicates China is achieving global manufacturing dominance at a scale and speed that is historically unprecedented, fundamentally altering global trade dynamics.
China deliberately maintains an undervalued renminbi to make its exports cheaper globally. This strategy props up its manufacturing-led growth model, even though it hinders economic rebalancing and reduces the purchasing power of its own citizens.
Despite significant US tariffs hitting labor-intensive goods, China's overall export volume remains strong. This resilience stems from a structural shift towards high-tech sectors like semiconductors and autos, combined with strategically rerouting trade through intermediary ASEAN countries to circumvent direct tariffs.
China's robust export sector is overcompensating for its weak domestic property market. This is projected to create a current account surplus equal to 1% of global GDP—a historical record—which will act as a significant headwind for its trading partners, particularly industrial economies in Europe like Germany.
Beyond raw materials, China's national ambition is to achieve near-total self-sufficiency. The prevailing mood is that there is "nothing for which it wants to rely on foreigners a single day longer than it has to." This philosophy of aggressive import substitution signals a fundamental break with the logic of reciprocal global trade.