Context:
• China has recorded a historic trade surplus exceeding $1 trillion in the first 11 months of 2025, raising global concerns about its growing export dominance.
• While China’s export performance reflects strong industrial competitiveness, it also signals weak domestic demand and rising risks of trade friction, especially with emerging economies and advanced manufacturing sectors.
• The situation is being viewed as a possible “second China shock”, with implications for global trade stability and India’s economic interests.
Key Highlights:
Record Trade Surplus in 2025
• China’s trade surplus crossed $1 trillion in the first 11 months of 2025 — a record for any country in such a short period.
• Major export drivers include:
– Machinery
– Electronics
– Automobiles
– Integrated circuits
• This highlights China’s continued dominance in global manufacturing and technology exports.
Shift in Export Markets Towards Global South
• Exports to the U.S. have declined due to tariffs and geopolitical tensions.
• However, China has offset this by increasing exports to:
– South and Southeast Asia
– Africa
– Latin America
• This growing focus on the Global South strengthens China’s trade influence in developing regions.
Manufacturing Overcapacity and Dumping Concerns
• Rising surplus is linked to China’s manufacturing overcapacity, where domestic production exceeds internal demand.
• This raises accusations of dumping, i.e., exporting goods at artificially low prices.
• Such practices may distort markets and trigger:
– Trade disputes
– Anti-dumping duties
– Protectionist backlash
• Countries fear a surge of cheap Chinese goods undermining local industries.
Emergence of a “Second China Shock”
• Unlike the earlier China shock driven by low-cost goods, the new shock is emerging in advanced sectors such as:
– Electric Vehicles (EVs)
– Solar energy components
– High-tech manufacturing
• This intensifies competition in strategic industries critical for energy transition and future growth.
Domestic Weak Demand Behind Export Push
• China’s export boom also reflects weak domestic consumption.
• Factors supporting export competitiveness include:
– Established global supply chains
– State-backed industrial policies
– A relatively weaker renminbi (yuan)
• The IMF has linked trade imbalances partly to the real depreciation of the yuan and urged stronger stimulus to boost domestic demand.
China’s Policy Dilemma
• China faces a difficult choice between:
– Curbing industrial overcapacity at home
– Continuing export-led growth
• Failure to address imbalance may worsen global tensions over unfair competition.
Implications for India and Emerging Economies
• Countries such as Indonesia, Thailand, Malaysia, and India are increasingly concerned about:
– Industrial disruption
– Job losses
– Social consequences of import surges
• India is monitoring the situation closely as it dismantles some protectionist barriers, which could:
– Increase Chinese imports
– Widen India–China trade deficit
– Challenge domestic manufacturing under Make in India initiatives
Relevant Prelims Points:
• Trade Surplus: Excess of exports over imports.
• Dumping: Exporting goods below normal value, often leading to unfair competition claims.
• Involution: Excessive internal competition forcing firms to undercut each other, reducing profitability.
• Renminbi/Yuan Depreciation: Can make exports cheaper and imports costlier, boosting trade surplus.
• Second China Shock: Renewed global disruption due to China’s dominance in high-tech and green industries.
Relevant Mains Points:
• Global Trade Concerns:
– Persistent Chinese surplus may trigger trade wars and protectionism
• Impact on Developing Nations:
– Domestic industries face competitive pressure from cheap imports
• Strategic Sector Competition:
– EVs and solar manufacturing are critical for future energy transition
• India’s Economic Challenge:
– Need to balance trade openness with safeguarding domestic manufacturing
– Strengthen competitiveness through PLI schemes, supply chain resilience, and anti-dumping measures
• Way Forward:
– Global coordination to manage trade distortions
– China must boost domestic demand to reduce export dependency
– India should enhance industrial capacity, diversify imports, and monitor trade imbalances pragmatically
UPSC Relevance (GS-wise):
• GS 3 (Economy): Trade surplus, dumping, industrial competitiveness, global supply chains
• GS 2 (International Relations): Trade tensions, China–Global South trade strategy, implications for India
• Prelims: Trade surplus, dumping, involution, IMF concerns