The European Central Bank published research in its Economic Bulletin examining why China’s trade surplus has widened since the pandemic, arguing that subdued domestic demand and structural changes have depressed imports while reinforcing incentives to sell abroad. It notes that for trading partners, including the European Union, these dynamics can translate into stronger competitive pressures from Chinese goods, weaker Chinese demand for foreign products and intensified competition in third-country markets. The analysis highlights a post-pandemic decoupling in China’s goods trade, with exports rising above their pre-pandemic trend while imports have stagnated below their 2021 level. Weak imports are attributed to cyclical effects from the housing downturn, which has weighed on import-intensive real estate investment and household balance sheets, alongside structural factors including the “Made in China 2025” strategy that reduces reliance on foreign inputs. Import patterns have also shifted by origin, with declines from advanced economies including the EU and the United States, while imports from emerging markets have been more stable. Empirically, rolling estimates suggest the long-run elasticity of imports to domestic demand has fallen significantly below one since the pandemic, pointing to a lasting reduction in import intensity. On exports, the ECB points to persistently falling export prices since mid-2023 and stronger non-price competitiveness, and emphasises a “vent-for-surplus” mechanism in which weak domestic sales and excess capacity encourage firms to redirect output to foreign markets. Export growth is reported to be strongest in sectors with underperforming domestic sales, where export volumes in areas such as motor vehicles and steel have risen by about 75% since 2022, compared with roughly 30% in sectors with stronger domestic sales growth, mainly technology goods. For Europe, the ECB argues that the rise in Chinese exports to the EU aligns more closely with China’s domestic demand weakness than with tariff-related trade diversion, noting that in the fourth quarter of 2024 domestic sales were around four times total exports and over 28 times exports to the United States.
European Central Bank 2025-11-11
European Central Bank research links China’s strong exports and large trade surplus to weak domestic demand
The European Central Bank's Economic Bulletin examines China's widening trade surplus post-pandemic, citing subdued domestic demand and structural changes that have depressed imports while boosting exports. The research highlights a decoupling in China's goods trade, with exports rising and imports stagnating due to factors like the housing downturn and the "Made in China 2025" strategy. The ECB notes that China's export growth, especially in sectors with weak domestic sales, poses competitive pressures for trading partners, including the European Union.