According to SCMP on December 22, China's record trade surplus in 2025 could trigger a stronger protectionist response from its trading partners, thereby increasing risks to Beijing's economic growth targets in 2026.

According to a report by the research firm Rhodium Group, while exports remain the most important variable determining China's real economic growth rate in 2026, external trade measures and weakening global demand will increasingly put pressure on this indicator.

Daniel Rosen, co-founder of Rhodium Group, noted that changes in external demand and the replenishment cycle in developed economies, which the International Monetary Fund (IMF) forecasts will slow down in 2026, pose significant risks to China's export prospects.

China's trade surplus in the first 11 months of 2025 exceeded $1 trillion, surpassing the record level of the entire previous year. Rosen suggests this result reflects China's efforts to diversify its export markets, as well as the depreciation of the yuan, consistent with domestic deflationary pressures. Lower export prices have helped China reduce its dependence on the US market while expanding aggressively into other regions.

The report suggests that Europe and some emerging economies may step up their response to China's trade practices, continuing or expanding on import restrictions already in place.

Direct exports to the US have fallen sharply, by 20-30% year-on-year each month since April 2025, while exports to other regions have continued to increase, particularly Africa, the EU, and ASEAN. China's export prices have fallen for the third consecutive year, contributing to a roughly 10% increase in export volume. Conversely, import demand remains weak, increasing by only 0.1% in yuan between January and November 2025.

Official data shows that net exports contributed approximately 29% to China's GDP growth in the first nine months of the year. However, this high level of reliance on external trade also makes the economy more vulnerable to global policy shocks.

Beijing is projected to likely reiterate its GDP growth target of around 5% in 2026. Meanwhile, international financial institutions are assessing the severity of the global environment relative to the scale of domestic policy support to formulate their own forecasts. Morgan Stanley forecasts China's economy to grow by only about 4.8% in 2026, arguing that a reactive policy approach will not be sufficient to strongly stimulate domestic demand.

Rhodium Group suggests that the Chinese government is becoming more cautious about expanding fiscal spending, which could limit infrastructure investment and slow down new investment activity in early 2026, as exports cool and the real estate market continues to weaken.

Consumption, considered by Chinese policymakers as a long-term growth driver, continues to be a weak point heading into 2026. Measures to boost service consumption implemented since September are assessed to have only limited short-term impact. Rhodium Group believes that fundamental reforms aimed at raising incomes and reducing high savings rates will take many years to show results.

In its annual assessment report, the IMF urged China to shift to a growth model more reliant on consumption to offset risks from global trade tensions. Speaking at a recent conference, Han Wenxiu, Deputy Director of the Office of the Central Economic and Financial Commission of China, said that measures to increase household income and raise pensions would be promoted to support consumption in the coming period.

Source: Tin Tuc News

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