China trade surplus tops $1 trillion for second straight year

China’s trade surplus topped $1 trillion this year with two months to spare, as exports of AI hardware offset weak domestic demand and kept the world’s second-largest economy on pace for a record.

For the 10 months through October, the surplus reached $1.04 trillion, compared with a record $1.2 trillion for the full year 2025, when it crossed the $1 trillion mark for the first time, customs data showed, CNBC reported. The milestone came as calls from trading partners have grown louder for Beijing to boost domestic demand and balance its economy.

The surplus is the trade imbalance that the U.S. and Europe are trying to close, and the fact that it has reached $1 trillion for the second straight year is a signal that the policy tools deployed so far have not worked. The Trump-Xi trade truce, the EU’s auto import curbs, and the tariff regimes that both partners have built are all attempts to narrow the gap, and the data shows that the gap is widening because Chinese exports are growing faster than the measures can constrain them.

The export engine

Exports in October jumped 35.2% from a year earlier, exceeding expectations for a 33.5% jump. They had grown 36.3% in September. The strength in exports has allowed policymakers to continue relying on moderate support to meet the country’s annual growth target of 4.5% to 5%, even as household consumption remains weak. Retail sales grew a modest 1.1% in September, underscoring the imbalance in the economy.

Imports also soared, rising 41.6% last month, the strongest since May 2021 and sharply beating estimates for a 32% rise. Growth in imports was mainly driven by demand for tech-related goods, critical minerals such as copper, and energy supplies, including liquefied natural gas, oil and coal, said Tianchen Xu, senior economist at Economist Intelligence Unit. “Imports were still dominated by AI trade.”

Imports of high-tech products surged 72% in terms of value in October from a year ago. Imports of crude oil, LNG and coal grew about 41%, 50% and 60%, respectively, by value. The import surge is a signal that Chinese factories are stockpiling the components and energy they need to produce the AI hardware that is driving the export boom, and the 72% jump in high-tech imports is the leading indicator for future export strength.

The AI driver

The surplus reflected global demand for Chinese-made AI hardware that has propped up an economy where consumers are still reluctant to spend. The AI trade is the engine that is keeping China’s growth alive, and the data shows that the engine is running at full speed. The 35.2% export growth is not driven by consumer goods or traditional manufacturing. It is driven by the chips, servers, and data center components that the world is buying to build AI infrastructure.

“China remains well on pace for a new record high for the trade surplus by year-end despite a miss in October,” said Lynn Song, chief economist for Greater China at ING Bank. Surplus growth in October slowed to a six-month low as imports surged, undershooting market estimates.

The AI dependence is the vulnerability. “Momentum looks to have slowed,” said Nguyen Hoang Nam, China economist at Capital Economics, estimating a seasonally adjusted 2% month-on-month fall in exports. Export growth could slow to 8% in 2027 as favorable base effects fade and global AI investment moderates, said Yuanliu Hu, an analyst at Citi Research. If the AI buildout slows, Chinese exports slow, and the surplus narrows from a level that the government needs to sustain its growth target.

Trade friction

Trade friction with the European Union and the U.S. truce expiring in January are adding to uncertainty. The EU reached an agreement with Beijing last month to limit the imports of Chinese hybrid vehicles over the next few years. China’s shipments to the bloc grew 24.4% while imports dropped more than 4% in October, widening the surplus to $33.4 billion.

The auto import curbs, taking effect on Dec. 1, would barely contain China’s export boom, according to analysts. The cap of 350,000 imported cars per year is above the 300,000 hybrids that China exported to Europe last year, though well below the 800,000 units in annualized pace over the last three months, according to Brad Setser, a senior fellow at the Council of Foreign Relations.

“Europe still is a long way from a coherent trade and industrial policy with respect to autos, let alone a coherent economic policy towards overall trade with China,” said Setser, a former U.S. Treasury official. China’s exports to the U.S. soared 32.9% in terms of value from a year earlier, while imports grew nearly 35%, making a surplus of $32.7 billion. Presidents Xi Jinping and Donald Trump are set to meet for a third time at the APEC leaders’ summit in Shenzhen next week, CNBC reported.

What I think

The $1 trillion surplus is the number that defines the U.S.-China economic relationship, and the fact that it has happened for the second straight year is a signal that the trade policy of the past four years has not worked. The tariffs, the export controls, and the trade truces have not narrowed the gap, because the gap is driven by AI hardware exports that are not constrained by the existing measures. The AI buildout is creating demand for Chinese-made components that is overwhelming the policy tools designed to reduce the imbalance, and the result is a surplus that grows every month.

The AI dependence is the vulnerability that the data reveals. The 72% jump in high-tech imports and the 35.2% export growth are both driven by the AI trade, and if the AI buildout slows, both numbers come down. Citi’s estimate of 8% export growth in 2027 is the scenario where the AI investment moderates and Chinese exporters lose the tailwind that has been driving the surplus. The surplus would still be large in absolute terms, but the narrowing would put pressure on the growth target and force the government to choose between supporting domestic consumption and maintaining the export-led model.

The EU auto caps are the policy measure to watch, and Setser is right that they are too loose to contain the export boom. A cap of 350,000 cars per year when China is exporting at an annualized pace of 800,000 is a ceiling that is above the current volume but below the trajectory. The caps will slow the growth rate but they will not reduce the volume, and the surplus with Europe will continue to widen unless the cap is tightened or extended to other sectors. The EU’s difficulty in forming a coherent trade policy is the opening that China is exploiting, and the APEC meeting next week is the next test of whether the U.S. and China can extend the truce past January.

The IMF’s call for China to boost domestic demand is the right advice, but it is the advice that China has been ignoring for a decade. The 1.1% retail sales growth in September is the evidence that the consumer is not picking up the slack, and the government’s reliance on export-led growth is the structural choice that produces the $1 trillion surplus. The rebalancing that the IMF and the trading partners want would require a transfer of income from the state and the export sector to households, and that is a political choice that the leadership has not been willing to make. The surplus will keep growing until the AI trade slows or the political choice changes, and neither is imminent.