China’s trade surplus, value added and the Middle income trap

China is on track for another record trade surplus this year   –  cluding against the US and the EU, the very countries supposedly waging a trade war against it

Focusing on China’s favoured, heavily subsidised industries risks missing something much bigger going on underneath.

We still think of what’s going on as a trade war between Beijing and the West. 

On one side is the China that sits in the middle of global value chains (GVCs) that are owned and influenced by foreign hands. I call this GVC China.

This is the China that looks incredibly powerful on paper because standard data practices treat the goods leaving it as the country’s exports.

What the data often fail to capture, however, is that the factories making the goods are foreign-owned, use imported components or technology and don’t share in any of the upside from brand and distribution

On the other side sits what I would call “emancipated China”, aka the Sinochain. 

This is the China working hard to own the value chain from top to bottom, so that it can benefit from the value-add itself, often by drawing on foreign countries for lower and middle-level supply-chain inputs into Chinese-controlled brands.

One reflects global companies relying on them to be the workshop of the world. The other reflects Chinese brands making inroads around the world and becoming global players themselves.

The irony is that China has itself tried to stress this point for years. As recently as 2017, Li Keqiang, the Chinese premier, told Europeans that 74pc of the country’s goods surplus with the EU came from processing trade. 

Although registered as China’s surplus, he said, the profits mainly accrued to multinational companies, with enterprises earning only a “thin margin”.

“If calculated by added value,” he said, “China’s trade surplus with the EU would be cut by around 40pc.”

Xi Jinping’s project of so-called “national rejuvenation” really came into its own. The aim was no longer simply to manufacture more things for foreign companies. China had already mastered that trick.

It was to escape the middle-income trap by taking ever greater control of the technology, brands and industrial systems upon which the global economy depended.

Izabella Kaminska Telegraph 10 September 2026

https://www.telegraph.co.uk/business/2026/09/10/a-new-china-emerging-wests-global-champion/

Middle income trap

https://en.wikipedia.org/wiki/Middle_income_trap

Izabella Kaminska

https://www.telegraph.co.uk/authors/i/iu-iz/izabella-kaminska/

Konsumtion finansierad med lånepengar lånade av en annan än den som konsumerar. Djup tanke.

Jag kom att tänka på det när jag nyligen läste en artikel - The curious case of capital gain-like profit - av den duktiga Izabella Kaminska som behandlade en artikel av en annan duktig flicka - Iren Levina, economics lecturer at Kingston University.

https://englundmacro.blogspot.com/2014/08/lanepengar-lonepengar-och-duktiga.html

Iren Levina Senior Adviser, Cross-Cutting Strategy, Bank of England

https://www.linkedin.com/in/iren-levina-66046a83/