China’s trade performance ended 2025 on a surprisingly robust note, with exports and imports both exceeding expectations in December, driving the annual trade surplus to a record $1.19 trillion—a 20% increase from the previous year.

Strong Year-End Surge
Exports grew 6.6% in U.S. dollar terms from a year earlier, sharply beating forecasts of 3% growth and accelerating from November's 5.9% rise. Imports rose 5.7%, the fastest pace in three months and well above the projected 0.9% increase. For the full year, exports expanded 5.5% while imports remained flat.

Shifting Trade Dynamics and Rising Tensions
The data underscores a dramatic reorientation of China’s trade flows amid ongoing tensions with the United States. Exports to the U.S. plummeted 30% in December—the ninth consecutive monthly decline—while imports from America fell 29%. Over the full year, exports to the U.S. dropped 20% and imports declined 14.6%.

Chinese exporters have pivoted aggressively to other markets. Shipments to the European Union and the Association of Southeast Asian Nations rose 12% and 11%, respectively, in December. This shift, however, is amplifying global concerns over China's massive surplus and its reliance on external demand.

Global Concerns Over Imbalances and Domestic Weakness
The record surplus is drawing international criticism. Eswar Prasad of the Brookings Institution warned it could have "as destructive an impact on the global trading system as Trump’s tariffs," potentially triggering a wave of protectionist responses worldwide. IMF Managing Director Kristalina Georgieva has urged Beijing to boost domestic consumption rather than depend on exports.

Domestically, China continues to grapple with deflationary pressures, a property market slump, and weak consumer confidence. Consumer prices were flat in 2025, missing the official 2% target.

Outlook and Strategic Moves
Despite these headwinds, the World Bank recently upgraded its 2026 growth forecast for China to 4.4%, anticipating further fiscal support and export resilience. The strong trade data may allow Beijing to maintain its current policy stance in the near term, economists suggest.

Notably, China’s exports of rare earths—a strategically critical mineral—jumped 32% in December and rose 12.9% for the full year, highlighting its leverage in key supply chains.

Attention now turns to China’s fourth-quarter GDP data, due next Monday, with economists projecting 4.5% growth—close to the government’s annual target of around 5%.