China reaches record trade surplus, raising alarm abroad

Beijing: Vast fleets of electric cars. Huge numbers of household appliances. And a seemingly endless supply of toys, clothing and other products.

China’s already formidable exports surged in June, China’s customs administration reported Friday. But imports shrank, with Chinese companies and households becoming more cautious about spending money. The result was a record monthly trade surplus of just over $99 billion.

For the Chinese government, the ever-widening trade surplus is good news. Consumers in distant markets are buying many of the goods that Chinese households no longer want or cannot afford. Exports help keep factories open in China, and provide the money for even more factories under construction as part of a national strategy to expand industrial output.

But China’s soaring trade surpluses have prompted alarm in many foreign capitals. Officials around the world worry that exports from China will displace their own industrial output, forcing factories to close and hurting economic growth. In recent weeks, governments in the United States, the European Union, Brazil, India, Turkey and elsewhere have been raising tariffs or imposing new ones on manufactured goods from China.

China’s trade surplus last month broke a record set in July 2022, when the country’s factories and ports were racing to catch up with global demand after a stringent COVID-19 lockdown in Shanghai had crippled output throughout much of central China.

Millions of people in China are now looking for ways to save money in response to a real estate downturn. Apartments and other properties represent 60% to 80% of household savings in China, an unusually large proportion by international standards. So falling apartment prices have had an outsize effect on consumer spending. A housing crisis that began three years ago because of overbuilding has already led to dozens of developers defaulting on debts.

The value of imports slid 2.3% in June from a year earlier, to about $209 billion. Exports jumped 8.6%, to $308 billion, generating the record-breaking surplus.

China’s trade surplus with the United States rose to nearly $32 billion last month, up from $29 billion a year earlier, as China exported more and bought less. The surplus with the European Union reached $22.6 billion in June, up from $19.1 billion in the same month last year.

China’s trade has become particularly lopsided with some countries: Its exports to Kenya, for example, are now more than 40 times its imports from that country. Kenya, which also owes heavy debts to China and other lenders, recently experienced deadly protests as crowds rejected proposed tax increases and demanded a stronger economy.

The June report “if anything understates the strength in China’s trade,” said Brad W. Setser, a senior fellow at the Council on Foreign Relations and former official in the Obama and Biden administrations. Because export prices have been falling, the physical volume of exports — the actual number of air conditioners, solar panels and so forth — has grown with particular speed to produce such a large jump last month in the surplus.

“It is clear evidence that China continues to try to grow on the back of exports, and manufactured exports in particular,” he said. This strategy increasingly puts China at odds with some of its trading partners, raising concerns about “one-sided trade and excessive dependence on Chinese supply,” he said.

Factories in China already make almost a third of the world’s manufactured goods. Xi Jinping, the country’s top leader, has set a national goal of fostering “new quality productive forces,” with an emphasis on building even more factories with lots of robots and other automation.

The Chinese Communist Party’s leadership is set to meet Monday in Beijing for a four-day strategic review of economic policymaking and ideology that typically takes place every five years. China’s latest economic growth statistics are also due Monday, with economists expecting a slowdown in the second quarter.

The emphasis on industrial expansion to offset China’s housing crisis is evident in official data: Net new bank loans to industrial borrowers reached $614 billion in the 12 months through March. That was six times the annual lending to those borrowers before the pandemic, as lending to industries has almost exactly replaced the loans that previously went to the real estate sector.