China’s meteoric rise from a low-income agrarian economy to a global manufacturing superpower has been driven, in large part, by one powerful engine: trade surpluses. For decades, China has exported far more than it imports, accumulating trillions in foreign reserves and reshaping the global economy in the process.
But how has China maintained these trade surpluses for so long—especially when economic theory suggests they should self-correct through currency appreciation and rising imports? The answer lies in a mix of policy, planning, and power plays.
The Strategy Behind China’s Surpluses
China’s trade surplus is not an accident—it’s a strategic outcome engineered by government intervention, institutional control, and long-term economic planning.
Here’s how China has done it:
1. Undervaluing the Yuan (RMB)
A fundamental lever has been China’s management of its currency:
Rather than allowing the yuan to float freely, China maintained a tight peg to the U.S. dollar for many years.
By keeping the yuan undervalued, China made its exports cheaper and more attractive on the global market.
At the same time, imports remained more expensive for Chinese consumers, discouraging domestic consumption of foreign goods.
Although China has gradually moved toward a managed float, intervention in foreign exchange markets still occurs when the yuan rises too fast.
2. Massive Foreign Exchange Reserves
China's central bank, the People's Bank of China (PBoC), has bought trillions of dollars in foreign assets—especially U.S. Treasury bonds—to absorb excess dollars from trade.
This suppresses upward pressure on the yuan.
It also provides a war chest of reserves to defend the currency in times of global uncertainty.
As of 2024, China still holds over $3 trillion in reserves—an unparalleled stockpile.
3. Export-Oriented Industrial Policy
From the 1980s through the 2010s, China's economic model was deliberately export-led:
The government built Special Economic Zones (SEZs) offering tax breaks, infrastructure, and cheap labor to foreign firms.
Subsidies and incentives were channeled into manufacturing, not services or consumption.
State-owned enterprises (SOEs) and local governments were mobilized to hit export growth targets.
This approach turned cities like Shenzhen into global supply chain hubs—and turned China into the "world’s factory."
4. Suppressing Domestic Consumption
China historically discouraged excess consumer spending through:
A high savings culture, partly driven by lack of a broad social safety net (healthcare, pensions, etc.).
Financial repression, including caps on interest rates and restrictions on consumer credit.
Channeling capital into infrastructure and real estate instead of domestic services or imports.
This meant less demand for imports and more savings available to fund export expansion.
5. Strategic Trade Relationships
China built strategic bilateral trade relationships around the globe:
It flooded Western markets with affordable manufactured goods.
Simultaneously, it imported raw materials from the Global South to power its factories, running surpluses with the U.S. and EU, and deficits with commodity exporters.
By maintaining control over both supply chains and export markets, China minimized the pressures that usually erode trade surpluses.
6. Moving Up the Value Chain
In recent years, China has evolved its surplus strategy:
“Made in China 2025” aimed to shift from low-end goods to high-tech exports like electric vehicles, semiconductors, and AI.
This reduces dependency on raw material imports while keeping China competitive in value-added exports.
The result? Continued surpluses, even as wages rise and traditional labor cost advantages shrink.
7. Capital Controls
To prevent its surpluses from leading to currency appreciation or domestic overheating, China maintains tight capital controls:
Outbound capital is heavily regulated, limiting investment abroad by individuals and companies.
This ensures that the inflows from trade are not offset by financial outflows, keeping pressure on the yuan in check.
In contrast to open economies like the U.S., China can insulate itself from speculative currency movements, maintaining tighter grip over trade dynamics.
Challenges and Tensions
While this system has worked for decades, it’s not without friction:
Trade tensions with the U.S. and Europe over "unfair trade practices" and "currency manipulation."
Overcapacity in key industries like steel, solar, and EVs, leading to dumping accusations.
A growing push for “dual circulation”—balancing export growth with domestic consumption—to reduce reliance on global markets.
China is slowly rebalancing, but the adjustment is complex and politically sensitive.
Conclusion: A Masterclass in Mercantilism?
China’s trade surplus management is often described as a modern form of mercantilism—where national strength is built through sustained export surpluses and strategic accumulation of wealth.
While most countries follow market-led trade patterns, China has shown how state-led capitalism can bend the rules of classical economics—at least for a time.
Whether this model is sustainable in the face of geopolitical pushback, slowing global demand, and demographic challenges remains to be seen. But one thing is clear: China didn’t just stumble into trade surpluses. It designed them.
