China: Imbalances Spread Globally Following US-China Trade Friction

■ In 2025, despite escalating Sino-US trade frictions, China's trade surplus will still expand.  

■ Outbound investment, primarily in securities, will increase, and China's influence in the international financial market is growing. 
 
In 2025, due to the US's significant increase in tariffs on Chinese goods, China's exports to the US are expected to decline substantially, resulting in a shrinking trade surplus. However, overall, China's trade surplus will further expand, reaching a record high of US$1.1889 trillion. Imports (basically flat year-on-year) will remain at a similar level to the previous year, while exports (up 5.5% year-on-year) will still grow even amid escalating Sino-US trade frictions. Looking at the full-year data, exports to the US (down 20.0% year-over-year) are expected to decrease significantly, while exports to the Association of Southeast Asian Nations (ASEAN) (up 13.4% year-over-year) and the European Union (EU) (up 8.4% year-over-year) are projected to increase. Exports to ASEAN countries will see particularly significant growth, especially to Vietnam (up 22.4% year-on-year). While this may include re-exports to the US, this trend shows that disruptions to trade with the US have, to some extent, boosted China's exports to other regions. US tariff policies have helped alleviate the trade imbalance between China and the US to some extent, but have further widened the global trade imbalance. For China, external demand has, to some extent, compensated for weak domestic demand, supporting economic stability; however, it has also become a factor exacerbating trade frictions with countries outside the US. Particularly concerning are the escalating tensions with the EU over battery electric vehicles (BEVs) and steel exports. Trade frictions, originally primarily between China and the US, are showing signs of spreading globally.  
 
Conversely, the financial balance of payments—the account reflecting domestic and international financial asset and liability transactions—is experiencing a sharp increase in deficit. According to the latest data, the financial balance of payments deficit reached $240.5 billion in the third quarter of last year (July-September), the largest since statistics began in 1998. Looking at changes in assets reflecting China's outward investment, the deficit has been continuously expanding since the second half of 2023, indicating that China is accelerating its outward investment. This is particularly evident in outbound securities investment, where deficits have increased significantly in both stocks and investment fund units, as well as debt securities. On the other hand, outbound direct investment deficits were widening until mid-2023 but have contracted over the last two years. The overall deficit in the non-financial sector is declining, indicating that Chinese companies are slowing their overseas expansion against the backdrop of escalating Sino-US tensions and rising concerns about economic security in various countries. 

 
Overall, the expansion of China's trade surplus means increased net exports, which, to some extent, has buffered the pressure of a slowing domestic economy. Meanwhile, outbound investment, mainly in securities, has also grown significantly. The widening trade imbalance and China's rising influence in international financial markets may, from an economic security perspective, become potential factors triggering a new round of friction between China and other countries.