China’s Export Reliance: Threat to Global Growth & Europe’s Response

China’s export economy remains a dominant force, recording a trade surplus of nearly US$1.2 trillion last year, even in the face of existing US tariffs. However, a closer examination reveals a growing reliance on exports to fuel economic growth, a trend with significant implications for the global landscape.

The Growing Reliance on Exports

Recent analysis indicates that net exports accounted for more than a third of China’s GDP growth in 2025 – the highest proportion since 1997, when its economy was considerably smaller. This dependence is driven, in part, by persistent deflation and overcapacity within the Chinese manufacturing sector, incentivizing companies to seek growth opportunities abroad.

Did You Know? In 2025, exports accounted for over 20% of unit sales for BYD, the world’s top-selling electric vehicle manufacturer, more than double the figure from the previous year.

Shifting Economic Drivers

More than half of China’s manufacturing value-added is now exported, according to some assessments. Meanwhile, traditional growth engines within China – property and infrastructure – are showing signs of weakening. Fixed asset investment experienced its first annual decline in over two decades, falling almost 4% last year. New housing starts are down more than three-quarters from their 2021 peak.

Consumption Remains a Challenge

Efforts by Beijing to stimulate consumer demand, dating back to the Hu Jintao era, have not translated into substantial structural reforms. In fact, consumption’s contribution to GDP growth has declined in recent years. There is currently little indication of a shift in policy under President Xi Jinping towards reforms that would significantly boost household consumption and a noted ideological disinclination towards Western-style consumerism.

Global Implications and European Concerns

Exports are likely to remain central to China’s economic prosperity. This shift, however, is altering the dynamics of global growth. Increased Chinese output is no longer necessarily a net positive, as Chinese mercantilism intensifies, and the country sells proportionally more than it buys.

Expert Insight: China’s continued reliance on exports suggests a potential for increased trade friction and a reshaping of global supply chains, as other nations grapple with the implications of a disproportionate trade balance.

Europe is particularly vulnerable, facing what French President Emmanuel Macron has termed a “Chinese tsunami.” The continent’s trade deficit with China is growing, with Chinese exports to Europe increasing by over 8% last year. This pressure is compounded by a diversion of exports previously destined for the US, and the depreciation of the renminbi against the euro by more than 8%.

European Response

Brussels has implemented defensive trade measures, adhering to World Trade Organisation rules, including tariffs on electric vehicles and restrictions on public procurement. However, these measures have been described as “scattergun” and “somewhat arbitrary.”

The Industrial Accelerator Act

A more systemic approach is emerging with the proposed Industrial Accelerator Act (IAA). This initiative, backed by France, would emulate policies in China and the United States by mandating “buy local” requirements for public procurement, which is valued at around €2 trillion (US$2.37 trillion) annually. The IAA also aims to restrict investments from certain countries, including China, in key sectors, contingent on technology transfer and local employment.

Concerns are growing that European industry is being “hollowed out,” particularly in the automotive sector, which employs around 14 million people. Chinese investments, often with limited local employment or content, have raised concerns, leading to a shift in production and sourcing of components to China. This has contributed to the loss of over 100,000 jobs in the European auto parts industry in the last two years.

Frequently Asked Questions

What percentage of China’s GDP growth was attributed to net exports in 2025?

More than a third of China’s GDP growth in 2025 was attributed to net exports.

How has investment in property and infrastructure performed recently in China?

Fixed asset investment fell by almost 4% last year, marking the first annual decline outside of the Covid-19 period in over two decades. New housing starts are also down significantly.

What is the Industrial Accelerator Act (IAA) intended to achieve?

The IAA aims to promote local content in public procurement and restrict investments from certain countries in strategic sectors.

As China continues to navigate its economic transition, will Europe’s response be sufficient to safeguard its industrial base and ensure a more balanced global trade relationship?