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Is China’s Surplus Really Shrinking?

Brad Setser Council On Foreign Relations

Date Posted:: July 28, 2026

Properly accounting for imports of gold and chips, China’s goods surplus grew $80B in H1 2026, Setser finds. China’s surplus expanded to ~7% of GDP in Q2, “an absolutely massive number for an economy as big as China.”

The easiest way to see what is happening is just to focus on the manufacturing surplus without gold and chips. It keeps on rising. In fact, without the 1.5 pp of GDP in gold imports in q2, the goods surplus would be close to 7% of GDP -- an absolutely massive number for an economy as big as China.

Takeaways by Macro Roundup^® AI

China's manufacturing goods surplus, stripped of gold and semiconductor imports, continues to rise, with the underlying goods surplus approaching 7% of GDP — an exceptionally large external imbalance for an economy of China's scale.
Gold imports alone depress China's reported goods surplus by roughly 1.5 percentage points of GDP, masking the true magnitude of structural excess production relative to domestic demand.

Who Will Win The War Of Neo-Mercantilists?

Martin Wolf Financial Times

Date Posted:: July 22, 2026
Is Database:: Database

Martin Wolf estimates that under reasonable assumptions, China should be earning ~$100B annually on her $4T of foreign assets. Yet, China shows an unexplained negative net income of around $125bn on its net foreign asset position.

China’s macroeconomics are very different from those obtained before the global financial crisis and, even more so, before the end of its property boom. Exports are surging, but domestic demand has stalled. China's export surplus in manufacturing is now around 2% of world GDP, which is “roughly twice the largest surplus Japan ever ran.” Most importantly, China shows an unexplained negative net income of around $125bn on its net foreign investments. But it should, on reasonable assumptions about the income it earns on its $4tn in net foreign assets, have a surplus of some $100bn. As a result, Brad Setser argues, the renminbi is by now some 30% undervalued. China’s policies look unavoidably threatening to much of the world. If a major trading partner runs huge and persistent trade and current account surpluses, everyone else has to run offsetting deficits. This leads to the shrinkage of sectors specialising in producing tradable goods and services, as well as huge domestic financial deficits.

China’s Trade Surplus With EU Hits Record as Tensions Intensify

Bloomberg Staff Bloomberg

Date Posted:: July 14, 2026
Is Database:: Database

China’s trade surplus with the European Union increased 27% y/y to $32.9B in June. China’s surplus with Germany more than doubled.

China’s trade surplus with the European Union climbed to a fresh high, keeping the issue of growing imbalances high on the agenda as the bloc weighs new measures to shield local industries. With exports to the EU soaring to a record, China’s surplus with the bloc rose 27% from a year earlier to $32.9 billion in June, according to Chinese customs data released on Tuesday. The country’s surplus with Germany more than doubled year-on-year while plunging 81% with France. For the first half of the year, China imported $135.6 billion of goods from the EU, up 9% from a year earlier. Meanwhile its exports amounted to $312.3 billion during the period, a gain of 17%.

Takeaways by Macro Roundup^® AI

China’s trade surplus with the European Union climbed to a fresh high, keeping the issue of growing imbalances high on.
The country’s surplus with Germany more than doubled year-on-year while plunging 81% with France For the first half of the.
Meanwhile its exports amounted to $312.3 billion during the period, a gain of 17%.

The Emergence Of A New Anchor

Charles Gave and Louis-Vincent Gave Gavekal

Date Posted:: May 20, 2026
Is Database:: Database

Post-covid, Renminbi bonds have outperformed all major bond markets over 1, 3, 5, and 10 years. Charles and Louis-Vincent Gave argue that two parallel worlds are emerging: an inflationary OECD and a deflationary Asia/emerging markets.

Renminbi bonds have now outperformed other major bond markets year to date, over the past 12 months, three years, five years, so far this decade, and over the past 10 years. Most countries now trade more with China than with the US. This is arguably the major shift of the past two decades. Put differently, for all the talk of “deglobalization,” the world is not so much “deglobalizing” as “de-Westernizing.” The idea that the world is closing in on itself would sound silly to anyone living in Jakarta, Mumbai, Dubai, or São Paulo. And the more countries trade with China, the more comfortable they become saving in renminbi and buying renminbi bonds to fund future trade. In turn, this implies the coexistence of two worlds: one stable—Asia and emerging markets—and one unstable—the OECD; one inflationary—the OECD—and the other deflationary—Asia and emerging markets.

Takeaways by Macro Roundup^® AI

Renminbi bonds outperformed all major bond markets across 1–10 year periods, driving increased non-Western savings in Chinese assets.
And the more countries trade with China, the more comfortable they become saving in renminbi, and buying renminbi bonds to.
The Emergence Of A New Anchor.

Finding China in the U.S.TIC Data

Brad Setser Council on Foreign Relations

Date Posted:: May 19, 2026
Is Database:: Database

Once you add back what’s hidden in European custodial centers, China’s US bond holdings have fallen less than the headline “China” line suggests. Setser estimates that China’s total US assets are still 50–55% of its reserve portfolio.

China hasn’t disclosed the currency composition of its reserves since 2020. But it isn’t clear that China’s central bank has shifted its currency composition of its foreign currency holdings around a lot, in part because the dollar share of its reserves was already low (5 percent) and going underweight the dollar means losing yield. But there is no doubt that China’s holdings did start to disappear from the U.S. data right after the G-7 immobilized Russian reserves in early 2022. There is a clear fall around this time in the bonds China holds in U.S. custodians. Estimating China’s true holdings of U.S. assets has gotten harder because it seems like China has diversified not just out of the US, but also out of Euroclear (a large Belgium-based custodian). The overall result suggests that China has reduced the share of its portfolio in long-term Treasuries, while increasing its bill holdings and maintaining a sizeable Agency portfolio of around 10 percent of total reserves (more than before 2020). Zooming the chart in highlights that the key implication of this upward adjustment to China’s estimated holdings of Agencies is that China’s total U.S. financial holdings remain between 50 and 55 percent of its reserve portfolio.

Takeaways by Macro Roundup^® AI

China’s dollar reserve share of 55% remains low, limiting further diversification and driving continued U.S. asset holdings of 50–55% of.
China’s shift out of long-term Treasuries into bills and agencies post-2022 reflects geopolitical risk concerns, leading to reduced custodial transparency.
China’s agency portfolio increased to ~10% of reserves post-2020, offsetting Treasury reductions and maintaining overall U.S. financial exposure despite diversification.

How Should We Measure Economic Power?

Chris Miller Chris Miller's Newsletter

Date Posted:: May 18, 2026
Is Database:: Database

Citing Brooks and Vagle, Miller argues profits are a better measure of economic power than output, and the US and its allies are ahead, especially in high tech. But, Miller asks, “Is perhaps profitability the right metric in peace but not in war?”

Profit, [Brooks and Vagle] argue, is evidence that one company can do something others can’t. Monopolists have the highest profit. Oligopolists make good money. Manufacturers of toys and textiles have razor thin margins. When Brooks and Vagle measure profits, they find that U.S. firms dominate, while Japan and Europe remain significant players. China is a second-tier player. The U.S. and allies lead in profits across the board. When it comes to high tech products, the imbalance in America’s favor is particularly pronounced. If profitability is the result of power dynamics, then the U.S. is far more powerful than comparing GDP or industrial output implies. There are a couple of potential counterarguments. Is China pursuing a loss-leading strategy, accepting low profits in the short run to win market share in the long run? In solar power, China has commoditized the sector and produced overcapacity that has led to losses, not profits. There’s no moat in solar the way there is around tech. Is perhaps profitability the right metric in peace but not in war? China is betting that its production advantage will create more durable CATL-style moats that eventually enable both profit and power.

Takeaways by Macro Roundup^® AI

U.S. firms dominate global profit margins vs. Japan, Europe, and China, demonstrating superior economic power beyond GDP comparisons.
High-tech sector profitability imbalance favors America particularly, while China’s solar commoditization and loss-leading strategy prioritize market share over near-term returns.
China’s production advantage and low-profit strategy drive long-term moat-building, challenging Western firms’ assumption that profitability alone ensures competitive resilience.

Beijing’s ‘Industrial Policy of Everything’ Leaves Rest of the World in the Dust

Greg Ip The Wall Street Journal

Date Posted:: May 18, 2026
Is Database:: Database

In 2016, China controlled more than 50% of global export volumes in 163 industries. By 2024, 315 of ~ 2,000 categories tracked. Rhodium Group calls it the “industrial policy of everything.” Beijing’s latest five-year plan covers 24 priority sectors.

The Achilles’ heel of Chinese industrial policy is its cost and waste. China runs bigger budget deficits relative to economic output than the U.S. Outside advanced manufacturing, the economy is moribund, weighed down by debt, deflation and aging demographics. Many critics thus expect, even hope, that Chinese industrial policy will eventually implode under the weight of its own contradictions. But there is no guarantee that will happen soon. To paraphrase an adage about markets, China can stay irrational longer than foreign competitors can stay solvent.

Takeaways by Macro Roundup^® AI

China’s industrial policy reach expanded to 315 of ~2,000 export categories by 2024 vs. 163 in 2016, driving dominance across.
Chemical exports including tetrachloroethylene surged 25x since 2019, demonstrating industrial policy penetration into mature sectors previously considered non-strategic.
China’s biopharma contracting services doubled 2018–2022 with projected doubling by 2027, showing policy-driven expansion into high-margin services beyond traditional manufacturing.

Properly accounting for imports of gold and chips, China’s goods surplus grew $80B in H1 2026, Setser finds. China’s surplus expanded to ~7% of GDP in Q2, “an absolutely massive number for an economy as big as China.”

Does China's true manufacturing surplus remain larger than official figures suggest?

Takeaways by Macro Roundup® AI

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Martin Wolf estimates that under reasonable assumptions, China should be earning ~$100B annually on her $4T of foreign assets. Yet, China shows an unexplained negative net income of around $125bn on its net foreign asset position.

Related Articles:

China’s trade surplus with the European Union increased 27% y/y to $32.9B in June. China’s surplus with Germany more than doubled.

Is China's trade imbalance with Europe becoming unsustainable?

Takeaways by Macro Roundup® AI

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Post-covid, Renminbi bonds have outperformed all major bond markets over 1, 3, 5, and 10 years. Charles and Louis-Vincent Gave argue that two parallel worlds are emerging: an inflationary OECD and a deflationary Asia/emerging markets.

Is the renminbi replacing the dollar as the global reserve currency anchor?

Takeaways by Macro Roundup® AI

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Once you add back what’s hidden in European custodial centers, China’s US bond holdings have fallen less than the headline “China” line suggests. Setser estimates that China’s total US assets are still 50–55% of its reserve portfolio.

Is China reducing its exposure to long-term U.S. government debt?

Takeaways by Macro Roundup® AI

Related Articles:

Citing Brooks and Vagle, Miller argues profits are a better measure of economic power than output, and the US and its allies are ahead, especially in high tech. But, Miller asks, “Is perhaps profitability the right metric in peace but not in war?”

Are profit margins a better measure of economic dominance than output volume?

Takeaways by Macro Roundup® AI

Related Articles:

In 2016, China controlled more than 50% of global export volumes in 163 industries. By 2024, 315 of ~ 2,000 categories tracked. Rhodium Group calls it the “industrial policy of everything.” Beijing’s latest five-year plan covers 24 priority sectors.

Is industrial policy giving one country an unfair economic advantage?

Takeaways by Macro Roundup® AI

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Takeaways by Macro Roundup^® AI

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