Trade data shows unexpected strength
China’s trade performance proved stronger than expected in May, helped by robust demand for artificial intelligence-related products, semiconductors and other high-tech goods.
The figures offered a rare bright spot for the world’s second-largest economy, which continues to face pressure from weak domestic consumption, property-sector weakness and disruptions linked to the Iran war.
Exports accelerate in May
Customs data released Tuesday showed that exports rose 19.4% from a year earlier in U.S. dollar terms.
That marked a clear acceleration from April’s 14.1% increase and exceeded the 15% growth forecast by economists polled by Reuters.
AI and green technology drive demand
Sheana Yue, senior economist at Oxford Economics, said the war has increased demand for green exports such as electric vehicles, batteries, solar products and AI-related technology goods.
She expects the outperformance in high-tech export growth to continue, supported by global demand for advanced manufacturing and energy-related products.
Semiconductor shipments surge
The strongest momentum came from technology-linked categories.
Exports of integrated circuits rose 32% from a year earlier to 39.7 billion units. In value terms, high-tech exports surged 50% in May, while high-tech imports climbed 47%.
U.S.-bound shipments rebound sharply
Shipments to the United States jumped nearly 35.4% in May compared with a year earlier.
According to Wind Information, that was the fastest growth since March 2021 and extended a rebound after a long period of double-digit declines last year, when Chinese exports were pressured by tariffs under President Donald Trump.
Tariff gap narrows with Southeast Asia
China’s relative tariff disadvantage compared with Southeast Asian exporters has also narrowed.
Tianchen Xu, senior economist at the Economist Intelligence Unit, said this shift has helped support Chinese exports. He added that any additional tariffs imposed under Trump’s Section 301 review may be smaller than those faced by rival exporters, giving Chinese manufacturers a further edge.
Imports also beat expectations
Import momentum continued to strengthen in May.
Imports expanded 27.4%, up from 25.3% in April and above economists’ forecast of 25% growth. The result helped push China’s trade surplus to $105.4 billion for the month.
Import growth outpaces exports
Across the first five months of the year, imports rose 24.5% compared with the same period a year earlier.
That exceeded the 15.5% increase in exports over the same period and narrowed China’s trade surplus compared with last year.
Import surge not a true rebalancing
Economists at Bank of America Global Research cautioned that the import surge should not be interpreted as evidence of a broad rebalancing of the economy.
They said the increase has been driven largely by higher input costs and concentrated in categories such as semiconductor chips and gold.
Domestic demand remains weak
BofA economists noted that weak overall demand and continued domestic substitution mean genuine trade rebalancing remains distant.
They also said the export boom has reduced Beijing’s urgency to roll out meaningful policy stimulus.
Economic momentum is uneven
China’s economy has shown signs of slowing after a strong first quarter.
In April, industrial production and retail sales posted some of their weakest gains in years, while the official manufacturing activity gauge slowed to 50 in May, the dividing line between expansion and contraction.
Stockpiling supports exporters
Chinese exporters have so far managed to withstand the economic fallout from the Middle East conflict.
Overseas buyers have rushed to secure supplies before energy costs rise further, supporting near-term export volumes.
Tailwind may not last
Economists warn that stockpiling may provide only temporary support.
If overseas buyers slow purchases after building inventories, weak domestic consumption may not be strong enough to replace the lost demand.
AI boom cushions production
Xiangrong Yu, chief China economist at Citi Bank, said the AI boom should continue to support production and trade.
Higher prices for technology and semiconductor goods are helping lift headline growth, even as the domestic economy remains fragile.
Retail sales may weaken further
Yu expects retail sales growth, a key gauge of consumption, to fall to zero in May.
That would mark a further slowdown from April’s 0.2% growth, which was already the weakest reading in three years, as the effect of trade-in subsidies fades.
Jobs market adds pressure
A weak labor market continues to weigh on household spending.
Frederic Neumann, chief Asia economist at HSBC, said manufacturing jobs are still contracting despite strong export growth, as automation and productivity gains reduce demand for workers.
Stronger yuan squeezes exporters
The yuan’s appreciation this year has created another challenge for Chinese exporters.
Many companies have accumulated large dollar holdings over time, and foreign-exchange losses are now beginning to weigh on profitability.
Currency gains continue
The offshore yuan has strengthened 2.8% this year to 6.7802 against the U.S. dollar, while the onshore yuan has gained 3% to 6.7787, according to LSEG data.
Both exchange rates were little changed after the trade figures were released, while China’s CSI 300 index rose 0.6%.
Stimulus may wait until July
Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said China delivered strong export growth despite global uncertainty and a stronger renminbi.
He added that the strength of exports could reinforce policymakers’ preference to delay major stimulus decisions until July.
A divided growth model
Economists describe China’s current economy as following a “K-speed” pattern.
Manufacturing and exports continue to expand strongly, while the property market and consumer spending remain weak.
Exports remain the main bright spot
Global demand for AI technology, chips and renewable-energy products continues to support China’s external sector.
For now, exports are helping offset some of the weakness visible in the domestic economy.
Higher commodity costs ease deflation pressure
Rising commodity costs linked to disruption in energy flows through the Strait of Hormuz have helped reduce deflationary pressure in China.
Economists expect producer inflation to accelerate to 3.8% in May, its strongest level in nearly four years, as manufacturers absorb higher input costs.
Consumer inflation remains modest
Consumer inflation is expected to rise more gently, reaching 1.3%.
That gap between producer and consumer prices suggests that companies are facing higher costs, but household demand remains too weak to allow broad price increases.
Energy shock remains a risk
China held around 15% of global oil stocks before the war began, according to Fitch Ratings.
If forced to draw down inventories to offset supply shortages, the country could run through its reserves by late October.
Stable power supply offers only partial protection
Jing Wang, China economist at Nomura, said China’s stable power supply may provide some buffer against the energy shock.
Even so, shortages and higher prices caused by the crisis are still expected to hurt the economy.
China’s trade strength masks deeper weakness
May’s trade figures show that China’s exporters remain highly competitive, especially in AI, semiconductors and green technologies.
But the broader economy remains uneven. Strong external demand is helping cushion growth, while weak consumption, a fragile jobs market, property pressure and energy-related risks continue to limit confidence in a more balanced recovery.