The writer is professor of practice, Faculty of Business and Economics, at the University of Hong Kong and former IMF China division chief
China’s trade surplus continues to grab headlines, with a surprisingly strong start to 2026. Other countries increasingly see this as evidence that China’s system unfairly supports manufacturers — at the cost of jobs elsewhere. The result has been an escalating cycle of tit-for-tat tariffs and trade barriers. But the rising surplus reflects slowing domestic demand, not trade changes. The cure, then, is to boost consumption in China — something no amount of tariffs can achieve. Fortunately, one powerful lever exists: a dramatic, permanent cut in the payroll tax.
China’s current account surplus peaked at nearly 10 per cent of GDP in 2007, following its accession to the World Trade Organization. This then evaporated, bottoming out at 0.2 per cent of GDP in 2018. The rebound since has been dramatic, reaching 3.7 per cent of GDP in 2025. Given that China’s economy has more than doubled in size since 2007, as a share of global GDP the surplus now rivals its previous peak.