China, the world’s second-largest economy after the United States, posted a strong trade surplus in May due to a substantial increase in export demand for artificial intelligence (AI)-driven technology, even as intensified geopolitical conflicts in the Middle East continued to pose challenges to global economic growth. China’s shipments not only outperformed the rest of the world, but both exports and imports also exceeded broader market expectations, with the trade surplus touching a four-month high. Exports to the United States registered phenomenal growth.
Data compiled by the Chinese Customs Department showed that the country’s overall exports jumped by a staggering 19.4 percent year-on-year (yoy) in May in US dollar terms, accelerating from a 14.1 percent gain in April. Economists had projected growth at 15 percent. Overall exports of integrated circuits soared 110 percent in value terms from a year earlier, partly driven by a surge in unit prices. Exports of high-tech goods surged 50 percent in May from a year ago, while imports jumped 47 percent in value terms.
Lynn Song, Chief Economist for China at ING Economics, said, “China's trade data beat market expectations across the board in May, with shipments to the US seeing a strong base-effect-driven bounce. External demand continues to be one of China's key growth engines this year, but higher imports could cut into the trade surplus going forward.”
Trade surplusChina’s trade surplus widened sharply in May as export growth outpaced imports by a larger-than-expected margin, signalling continued resilience in the country’s external sector despite lingering global trade uncertainties. According to customs data, China’s trade surplus rose to US$ 105.4 billion in May, surpassing market expectations and marking the highest monthly surplus since January. The stronger export performance is expected to support economic growth during the second quarter of FY26, even as domestic demand conditions remain relatively subdued.
However, on a year-to-date basis, China’s trade surplus remains down by around 3.8 percent compared with the same period last year, reflecting a notable rebound in imports. The recovery in inbound shipments has partially offset export gains in recent months, indicating improving domestic consumption and industrial activity. China also continues to run a deficit in services trade, underlining persistent imbalances within the broader external sector.
Focus on balanced tradeBeijing has repeatedly signalled its intention to promote more balanced trade by encouraging imports, reducing tariffs earlier this year, and supporting a stronger yuan. These measures have helped stimulate overseas purchases, particularly in key commodity and agricultural segments. Analysts expect China to further increase imports in the coming months, including agricultural products from the United States and potentially energy imports later in the year.
At the same time, concerns remain over the possibility of higher tariffs by the European Union on Chinese goods. While such measures could create fresh headwinds for trade, China has vowed retaliation against what it describes as discriminatory tariff actions. Nevertheless, market participants believe that, similar to last year’s tensions with the United States, any friction with Europe is likely to remain contained rather than escalate into a broader trade conflict.
Although China’s trade surplus this year may fall short of the record US$ 1.18 trillion achieved last year, external demand continues to remain one of the country’s primary drivers of economic growth. Domestic demand, however, continues to lag, highlighting the uneven nature of the recovery. Investors and policymakers are now closely watching upcoming economic data releases next week for further indications on whether the gap between external and domestic demand is likely to widen further.
Big boost in exportsChina's exports rose 19.3 percent year-on-year in May (market forecast: 15 percent; ING forecast: 19.4 percent), up from 14.1 percent yoy growth in April. The performance was broadly in line with economists’ projections, though stronger than broader market expectations. The increase marked a three-month high and lifted year-to-date export growth to 15.5 percent yoy. By export destination, the key development in May was a strong rebound in exports to the United States, which surged 35.4 percent yoy, marking the highest growth level since 2021.
The recovery was primarily driven by a favourable base effect rather than reflecting US President Donald Trump’s visit to China. May 2025 marked the peak of the US-China trade war, when additional tariffs on Chinese goods surged to 125 percent. However, this base effect is likely to weaken beginning with next month’s data. The rebound seen over the past two months has narrowed the decline in year-to-date exports to the US to 2.7 percent yoy. If exports to the US return to sustained positive growth this year, it could remove one of the biggest drags on China’s exports seen last year.
Trade-related outcomes following Trump’s visit to China appeared relatively limited. Announcements largely focused on restoring agricultural purchases to “normal” levels, while efforts to establish a bilateral trade board and adopt a “constructive strategic stability” approach to relations could help both sides avoid major trade clashes similar to those witnessed last year. Market participants are also hopeful for further trade breakthroughs before or after Chinese President Xi Jinping’s possible visit to the United States in September.
Other geographiesExports to South Korea were also very strong, rising 42.1 percent, as technology trade accelerated. Exports to ASEAN and Russia also posted robust growth, increasing 24.3 percent and 35.8 percent, respectively. The key laggards were exports to the European Union, which rose 7.6 percent, and Japan, which recorded growth of 10.9 percent. External demand has remained a key bright spot for China amid relatively lacklustre domestic activity data, and this gap appears to be widening.
By product category, trends seen over the past few years continued in May. China’s exports of high-tech products rose 50.9 percent year-on-year, while semiconductor exports surged 110.9 percent. Exports of automatic data processing machines increased 66 percent, mobile phones 44.3 percent, automobiles 39.3 percent, and ships 31 percent. Export restrictions may have contributed to the year-on-year declines observed in March and April. Meanwhile, China’s refined petroleum exports rebounded sharply, registering 27.2 percent year-on-year growth in May.
Import-centric approachMeanwhile, imports rose 27.4 percent year-on-year in May (market forecast: 26 percent; ING forecast: 36.4 percent), up from 25.3 percent yoy growth in April. The data came in broadly in line with consensus forecasts, though weaker than economists’ projections. Imports from the United States recovered, rising 20.4 percent yoy. However, the primary drivers of import growth remained in Asia, with imports from South Korea surging 83.6 percent, Japan rising 29.2 percent, and ASEAN increasing 28.2 percent, all outpacing the headline import growth rate in May.
“For now, China's import growth remains mainly a technology-driven story rather than an energy-driven one, as evidenced by the surge in imports from Korea. China's high-tech imports rose 46.8 percent yoy in May, with semiconductor imports surging 68 percent and imports of automatic data processing machines also rising 80.1 percent,” Song added.
China is the world's largest importer of crude oil. Beginning in April, import volumes dropped sharply, while import values rose modestly due to higher prices. In May, crude oil import volumes fell 29 percent year-on-year, while import values increased 10 percent. China’s large oil reserves provide it with greater flexibility to adjust imports strategically. However, if no resolution is reached in the Middle East and supply disruptions and elevated energy prices persist, Chinese importers are expected to return to the market at more regular levels.
DILIP KUMAR JHA
Editor
dilip.jha@polymerupdate.com
