Two narratives behind China's trade surge

Even a war in the Middle East and waves of Western protectionism couldn't trip up China's trade engine. In the first half of 2026, trade surged by 16.9 percent to reach 25.47 trillion yuan ($3.76 trillion).

Exports climbed 13.4 percent, but it was imports that stole the show, shooting up 22.1 percent. The real headline, though, sits inside the export basket: high-tech products and advanced manufacturing goods, from semiconductors and computer components to vehicles, emerged as the standout performers.

As Wang Jun, deputy head of the General Administration of Customs, summed it up, "notable progress has been made in stabilizing scale and improving structure." Behind the phrasing is a simple story: China isn't just trading more, it's trading smarter.

That story, however, is being told two very different ways. In Washington, Brussels and many newsrooms in between, the reflex is to reach for the "China Shock" label — the notion that "Beijing's export machine runs on unfair fuel", namely industrial subsidies and a manipulated currency, and that the exhaust fumes are hollowed-out factories, first across the advanced economies and now in the developing world too.

Scholars in China and the Global South tell an entirely different story: this is the payoff of decades of unglamorous but compounding investment in technological upgrading and industrial transformation, with ripple effects reaching far beyond China's borders.

Industrial machinery, green technology, and intermediate inputs flowing to the Global South are empowering developing economies for their own green industrialization, while cheap, high-quality consumer goods ease household budgets worldwide.

On this reading, China isn't hollowing out its trading partners; it's offering the Global South an opportunity to move up the value chain, and giving a competitive jolt to producers everywhere.

The trade data supports the second story. Mechanical and electrical products, up 20.1 percent year-on-year, now make up 63.5 percent of total exports, which is hardly the profile of a country coasting on cheap basics. China is riding two waves at once.

The first is the global boom in artificial intelligence: as the world scrambles for computing power, data centers, and terminal equipment, China's exports of integrated circuits and computing hardware have surged accordingly.

The second is a downstream jolt from the Iran war itself, which has pushed countries to seek energy security and accelerate their green transitions.

China's clean-tech sector has risen to meet such a pressing demand. Electric vehicle exports continued to surge, with lithium batteries and solar products also maintaining strong momentum. And waiting in the wings is what commentators are calling the "next big three", including AI-integrated and bionic robots, innovative pharmaceuticals, and advanced medical equipment. The next wave of exports is gathering momentum.

The allegations of currency manipulation that underpin the "China Shock" story simply do not stand the empirical challenge. If China's edge really came from an artificially cheap renminbi, you would expect the cheapest, most price-sensitive exports to be thriving. Instead, low-value manufacturing exports are shrinking.

Further, between early 2024 and mid-2026, the RMB actually appreciated by about 5.8 percent against the dollar and strengthened against its trade-weighted basket as well. Yes, there was a real effective depreciation in late 2025, as inflation stayed low relative to trading partners, but that trend has reversed in the first half of 2026. The currency manipulation spin can't carry the weight being placed on it.

The subsidy argument fares no better. There's a sharper irony buried in the International Monetary Fund's analysis, which says that China's industrial-policy spending actually distorted resource allocation badly enough to shave 1.2 percent off total factor productivity and up to 2 percent off the GDP relative to baseline.

In other words, the very institution supplying ammunition to the "unfair subsidies" narrative is also describing a policy that, on its own numbers, hurt China more than it helped. That's an odd foundation for a shock thesis.

It's also worth asking who isn't subsidizing industry. Industrial subsidies are hardly a Chinese invention — the United States has its Inflation Reduction Act, the European Union its Green Deal, and China's own industrial policies operate within World Trade Organization rules.

The more interesting distinction may not be whether subsidies exist, but where the money goes. Western subsidies, critics note, often flow toward shareholder returns and executive compensation.

China's industrial policy, by contrast, has more visibly fed industrial upgrading itself. The historian Adam Tooze makes the point starkly: China's roughly $18 billion in cumulative solar subsidies over 15 years is one of the most productive climate investments of the era, with benefits extending far beyond China's borders.

Zoom out further and a quieter but arguably more consequential shift comes into view: China is rewiring who it trades with.

Trade with the US has gone flat, but trade with the EU, Latin America, and Africa has expanded by 10.2 percent, 16.2 percent, and 19.6 percent respectively, while trade with Belt and Road Initiative partners is up 14.8 percent, and now accounts for over half of China's total foreign trade. This isn't just diversification for its own sake; it's a redistribution of trading power away from a single axis and toward a more multipolar system.

For developing economies, the payoff is tangible: Chinese exports of machinery, intermediate inputs, and green technology are helping accelerate industrialization, while Chinese-built physical and digital infrastructure strengthens two-way trade links.

Zero-tariff access for products from 53 African countries has already sent Kenyan avocados, Ethiopian coffee, and South African citrus fruits flowing north in growing volumes.

Layer in overseas development finance, direct investment and technology transfer, and a pattern emerges that looks less like "China squeeze" and more like "China opportunity". China is effectively providing a scaffold for developing countries to move up the global value chain and amplify benefits from global trade.

None of this means China's export boom is a costless good-news story for everyone, everywhere. Competitors in advanced economies are right to feel the heat, and displaced workers in specific sectors deserve real policy attention rather than dismissal.

But the blunt "China Shock 2.0" narrative struggles to survive contact with the data. What the numbers describe instead is a country that spent decades investing in capability and is now exporting the results, while simultaneously deepening ties with the Global South in ways that look, for many partners, less like a squeeze and more like an opening.

The debate over "China Shock or China Opportunity" may never fully resolve, because the honest answer is probably both; shock for some incumbents, opportunity for many latecomers.

The author is the Kremer Chair professor of economics at Willamette University and a non-resident senior fellow at the Global Development Policy Center at Boston University.

The views don't necessarily reflect those of China Daily.

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