China Decode: How China Is Breaking the World of Trade

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China's trade surplus is bigger than the trade surpluses of the next eight countries combined. So that just gives a sense of how enormous this is.

I was also going going back and looking into history to see if this is the biggest trade surplus we've ever seen by any country in history.

And this is certainly by far the largest trade surplus that we've seen in peacetime.

Welcome to China Decode. I'm Alice Han.
And I'm James King.

Well, in today's episode of China Decode, we're discussing China's push for near-total self-sufficiency in technology and industrial goods and how that rewires global trade, a tense week at Asia where the US, China, Japan, and Taiwan are navigating trade security warnings and a massive new Taiwanese defense buildup.

And Beijing's newest experiment to spark consumer spending using school holidays to jumpstart travel and revive a slowing services economy.

That's all coming up, but first, let's do a quick check-in with how the Chinese markets are starting off the week. On Monday, both their Shanghai A share index and Hang Seng's H share index rose 0.7%,

boosted by a tech rebound and growing confidence that the U.S. will choose to cut rates later this month.

Internet giants such as Alibaba, Tencent and Trip.com all closed higher, benefiting from the tech rally.

And PopMut International, creator of the famous Labuboo, closed down over 4% due to growing fears from investors that the Labuboo craze may be fading. A lot to discuss, James.

We're almost at the end of the year, but I think there's still a lot coming out of China in the new cycle on multiple fronts.

Well, I mean, we did an episode on the laboo boo craze at the very start of this podcast. It's interesting that that appears to be fading already.
Yeah. But let's get straight into it.

China's shifting toward a model where it barely imports anything strategic. James, we've talked about this on many episodes in the past.

And that trade surplus is blowing up the old logic of global trade.

Beijing still wants to sell to the world, but beyond raw materials, commodities, and a few consumer goods, it doesn't want to buy much. That imbalance is already reshaping growth.

China's economy no longer lifts other countries as it once did. It increasingly replaces them.
And you can see this transition in the latest data.

Factory activity coming out of China is still in contraction mode for an eighth consecutive month. Services are softening as holiday spending fades.

And global multinationals now say China isn't a cash cow anymore. It's hyper-competitive test lab where foreign brands must slash prices and redesign products just to survive.

All of this points to the same reality. China is doubling down on self-reliance while squeezing already limited space for foreign companies and high-value imports.

James, there's so much to talk about on this subject alone. By the end of the year, we could see China's trade surplus reach a record level surpassing 1 trillion for sure, maybe even 1.2 trillion.

We're already close to $600 billion in trade surplus surplus in the first half of the year.

Certainly what has been interesting in the news cycle that I've seen is the fact that more and more European countries have voiced consternation and concern.

I'm thinking especially about Germany in this case, that China is eating its lunch and increasingly replacing it in key supply chain areas from chemicals to cars.

I think that this is going to be an ongoing story for sure.

But what is interesting, and hopefully we can dwell on this in this segment, is how other countries in East Asia and Europe are going to deal with China increasingly replacing them as they go up higher on the supply chain.

So, James, having spent a lot of time in Europe and in the UK, how are people in those countries reacting to this increasing China threat? Absolutely, Alice.

I mean, you know, the thing that really sparked my interest was an article last week by a former colleague of mine, Robin Harding at the Financial Times.

And the article was entitled very starkly, quote, China is making trade impossible. And that really made me think.

He basically was traveling around China asking normal people what they thought China might want to buy from the rest of the world.

And a few people said, you know, we would buy soya beans or we would buy iron ore or a few more would say maybe Louis Vuitton handbags and some said higher education.

But in general, the response was really desultry, uninspired.

And Robin Harding's conclusion was, and this is a quote again, there is nothing that China wants to import, nothing that it does not believe it can make better and cheaper, nothing for which it wants to rely on foreigners a single day longer than it has to.

And this has caused a lot of readers' comments. It's been a very widely read article.
And of course, it's not meant literally.

I mean, we need to say at the top that China last year imported 2.6 trillion US dollars of goods. So obviously China is importing.

But I think that nevertheless, this article really does capture a mood. And that is the fact that China wants to institute import substitution pretty much wherever it can.

Everybody is already familiar, I think, with the so-called Made in China twenty twenty five plan, which started started 10 years ago and identified 10 areas in which China wanted to boost self-sufficiency, things like electric vehicles, robotics, biotech, et cetera.

And in all of those 10 areas, China's been spectacularly successful. So it really does raise the question of

how big is China's trade surplus going to get. You've just mentioned that this year it'll be well over a trillion US dollars in trade surplus.
It could be as much as 1.2 trillion.

And I just did some calculations before and I calculated that China's trade surplus is bigger than the trade surpluses of the next eight countries combined.

So that just gives a sense of how enormous this is. I was also going back and looking into history to see if this is the biggest trade.
trade surplus we've ever seen by any country in history.

And there seems to be a little bit of a question as to whether or not the US, straight after the Second World War, had trade surpluses that were larger as a percentage of global GDP.

But that was wartime. I mean, that was the aftermath of a war in which many economies in the world were shattered.
This is certainly by far the largest trade surplus that we've seen in peacetime. So

I think it raises a couple of really basic questions. The first is: can the world absorb these surpluses? Or are we going to face a big backlash?

Is there going to be a big backlash from Europe or there has already been from the US or even countries in Asia?

And the next question is: you know, is there going to be some empathy from China as to what other countries are going through as their industrial base is progressively hollowed out?

I don't know whether you're picking up any signals on that or what aspect of this issue you're finding interesting, Alice.

Well, James, I'm glad that you led with the micro story, the anecdotal story, and then ended with the macro outlook because it's all signs point to the fact that China is using its economies of scale to effectively out-compete the traditional trade surplus manufacturing giant countries like Japan.

I was reading an article that I highly recommend by Brad Setzer, who I think is preeminent in the realm of looking at balance of payments, trade balances as well across countries.

And he looked specifically at the IMF data of manufacturing surplus.

So he looked at the manufacturing goods across countries, calculated them, and found that China's manufacturing surplus' share of GDP is now exceeding 2%.

It is definitely higher now than Japan's and Germany's were at their historic peaks.

And his point in that piece, again, published in the CFR Council of Foreign Relations that I highly recommend, his point is that China's manufacturing surplus growth is faster than Japan's and Germany's ever were, and its scale has now outpaced both countries.

So we're seeing a country that, to your point, James, is using import substitution and autarky and basically out-competing a lot of these countries.

Now, a traditional macroeconomist would say this is bad for China. It creates inefficient investment.
It leads to higher prices. It leads to overcapacity and lack of innovation.

Now, that I don't think is universally true in China. I think the opposite is true in a way where we've seen hyper-competition driving down prices.
Certainly we do have the overcapacity element.

But I think what makes China so, so generous or unique is just the scale of the country.

If you think about the federated system of many competing local governments, a huge labor force, a flexible labor force, I think that makes China slightly different when you look at it from a macroeconomic theory lens.

But certainly, I don't think that the Europeans are listening to Draghi, Draghi's report about how to revive industry in Europe.

And similarly, and we'll get to this in the next segment, Japan and Korea, although they're still, I would say, competitive in certain areas, especially when it pertains to chips, semiconductor equipment, some software, you know, increasingly you're seeing China out-compete them as well in electronics and cars.

I find that the autos example particularly interesting. So Germany and Japan export the majority of their cars.
I think somewhere like 80 to 90% of the cars they make, they export.

China, it's the flip side, it's true. They actually domestically consume most of the cars they make.

But this is again, we're starting to see a change here where it's projected that China's exports of cars has surged to well over 6 million cars.

That's a tenth of the global auto market outside of China. And by 2026, there's a projection that this could be 8 million car exports.

Given what we're seeing in the economy, the overcapacity, the need to move out, it's inevitable that this number increases.

And again, first-hand evidence looking at these cars, they're pretty competitive and user-friendly. So, you know, watch this space for sure.

I think Autos is going to be a huge political issue and is, in general, historically, a major political issue because of labor unions, because of the outsized influence on the economies of different countries.

This is going to get political very quickly, I think, in other countries. Yeah, absolutely.
I mean, it's very interesting that you chose Autos. I also have a car example,

not because it's special, but because it's really representative.

I mean, the number of different components that go into making a car, I think the car basically represents a country's manufacturing prowess. The example I have is really scary for Europe.

And that is that Volkswagen, obviously one of Germany's biggest car makers, has just said that it can make an electric vehicle entirely in China for half the cost of doing it elsewhere.

You've got to consider that Volkswagen employs hundreds of thousands of people back in Germany.

And now it's saying it can make a car, an electric vehicle, at half the cost of making it back in Germany.

And this is the first time that it's developing cars outside Germany.

And it's also announced that it's going to release about 30 electric vehicle models in China over the next five years as it bets on localized research and development.

So this is the kind of innovate in China for China and for the outside world model.

It basically means that all of the smart stuff that Volkswagen used to do back in Germany, it is now going to be doing in China.

And as I said, I chose this example because I think it's representative, not because I think it's an outlier, of what different companies, very well-known companies in Europe in all kinds of different sectors, are going to be doing.

So, it basically means that we're hollowing ourselves out with our our biggest companies moving all of their smart stuff to China or moving a lot of their smart stuff to China.

I must say, I think this is quite different from any period in history that I can think of since the Second World War.

We're facing really big headwinds. And I just sort of returned to Robin Harding's question.
You know, is this simply going to break the world of trade?

I don't think there's an answer to the question yet, but I do think the question question is justified, and that's a big statement in itself.

Yeah, and now we're hearing China building more plants in Europe. I think that is going to be the modality moving forward.

Whereas in the 90s, 2000s, a lot of plants, Volkswagen, BMW, were doing tech transfers, quote unquote, in China or setting up JVs.

Now we're seeing it the flip side, which is CATL, the Chinese battery giant, setting up lots of plants in Spain.

So we're seeing a bit of a mirror image in this relationship between Europe and China moving forward.

One data point that I want to end on, which I found very startling, but really sums up the enormity of this China problem, is the IMF Global Goods Trade Volume Data.

Chinese exports cumulatively are up 40% since the end of 2019 in volume terms. Their imports are only up 1%.
So basically flat.

And again, the flip side of this trade export machine is that China is just not buying from the rest of the world. Okay, we'll be back with more more after a quick break, so stay with us.

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Welcome back. Asia just delivered a real-time snapshot of how tightly trade, security, and politics are now intermeshed.

Last week, Xi Jinping scolded President Trump over the phone for Japan's tough talk on Taiwan. Trump, eager to preserve a fragile trade détente, quietly urged Tokyo to cool its rhetoric.

And Taiwan, caught in the middle, unveiled a massive new $40 billion defense package to harden itself against a potential Chinese attack.

Meanwhile, Hong Kong is reeling from a devastating apartment complex fire that's killed at least 151 people.

The tragedy has triggered anger over safety failures, but Beijing immediately moved to stifle criticism, warning residents not to protest and arresting people who called for an independent inquiry.

And all of this is happening as China expands its use of AI-driven censorship and surveillance, deploying new tools across its justice system and outsourcing enforcement to private tech companies.

It's another reminder that the region's security tensions aren't just about armies and alliances. They're increasingly about information control and political stability at home.

James, I had a lot of questions from my clients about this phone call. There was one side from Ling Lingwei, the Wall Street Journal, saying that Xi Jinping initiated it.

Besson and Co said that Trump and the US team initiated it. I had heard from somebody close to the Trump team that it was actually Trump himself that had initiated it.

A lot of the discussion was about Taiwan from the Chinese side, but Trump wanted to make it clear that he was worried about Ukraine and wanted Chinese collaboration.

So we're getting two sides of this same phone call. What did you hear about it yourself, James?

I think that really the most important aspect of this phone call from our perspective is that Xi Jinping clearly decided to focus on Taiwan. We all know what a big issue Taiwan is in China.

It is China's geostrategic priority. And what I'm talking about, of course, is at some point in the future, regaining control or recovering control over Taiwan.

And of course, on the other side, the US has the Taiwan Relations Act, which doesn't explicitly pledge direct US military military support for Taiwan or intervention in the event of an attack on Taiwan, but it does commit the U.S.

to maintaining the capacity for Taiwan to resist force that would jeopardize Taiwan's security.

So Taiwan is obviously one of the biggest issues, if not the biggest geostrategic issue between the US and China.

And so I think it was interesting that Xi Jinping chose to highlight this in a way that was quite interesting to me.

He said that it would be an integral part of the post-war international order that the US and China would together fight fascism and militarism.

And then he said, and this is a quote, given what is going on, it's even more important for us to jointly safeguard the victory of the Second World War.

And I think what he was referring to when he said, given what is going on, he was referring to comments recently by the Japanese Prime Minister, Sanai Takaichi, who said that a Chinese attack on Taiwan could trigger a military response from Tokyo.

And to me, that sounds like the impetus behind Xi Jinping either agreeing to this call or asking Trump to talk about this topic, because this statement by Takaichi, the Japanese prime minister, has plunged relations between Japan and China into their worst crisis in a decade.

And it's clear that it's had big blowback in Beijing. And I think if I was to summarize what Xi Jinping is trying to do, he's trying to get reassurance from Trump that together the U.S.

and China will not drift further apart on Taiwan, that Taiwan will not kind of get up a steam of impetus behind it to go for independence or anything like that that could trigger some kind of military military response from China.

That's my reading of it. But overall, Alice, I mean, I think everything that you've just mentioned, including that tragic fire in Hong Kong, I mean, my heart goes out to those people.

That apartment complex was very close to where I used to live in Hong Kong.

But all of the geopolitical issues that you've mentioned show to me just how fractious and tense and complicated the big power relations in Asia really are. For sure.

And it shows that it's a multiplayer game. It's not just about the China and U.S.
conflict.

I think with a more hawkish administration in Tokyo, led by Takeichi, it's clear that the Chinese are worried about the Taiwan question again.

And like you, James, I believe that Xi Jinping was motivated to take that call that Trump initiated because he ultimately wanted American pressure on the Japanese prime minister to lower the heat.

Because as you mentioned, James, she had made statements alluding to the fact that if Chinese troops were surrounding Taiwan, it would be a survival-threatening outcome.

And that in itself was read by Chinese elements on the mainland as a provocative statement.

And even although they've since the Japanese officials have tried to, I think, improve relations, right now it doesn't look like Beijing is interested in seriously lowering the heat.

In fact, they probably want to send a message. This is happening at the time in which Taiwan is nominally showing that it is willing to increase its military readiness and defense spending.

It planned recently to increase its defense spending to 3.3% of GDP by next year and is committed to 5% of GDP by 2030.

But as we know, James, money isn't everything and China has an overwhelming defense superiority. If we just take America out of the equation, China has four times more personnel than Taiwan has.

It has roughly 200 more tanks. It has more than double the artillery capacity.
And as we saw in Ukraine, that's actually quite important. It has 10 extra submarines and double the military aircraft.

Now, Taiwan can, I think, rely somewhat on some of these regional players like Japan, South Korea, and obviously the US.

But to my mind, the Taiwanese increased support of the military is a little too little, too late.

I remember reading several years ago when Russia-Ukraine broke out as a conflict, a study that was looking at polling in Ukraine and Taiwan.

And what was clear was the Taiwanese public, especially the young generation, were far less willing to go to war or use war as a means to solve any tensions with China, unlike the Ukrainians, where I think there was a lot more civilian and military battle readiness and appetite for conflict.

It seems in the Taiwanese case that that is less true. That remains to be seen, obviously.
But certainly, I worry when I look at Taiwan's general net capabilities vis-a-vis China.

And then I worry also about the Trump administration.

How credible is it for us to really believe that Trump would come out on the side of the Taiwanese if China were to go for a quarantine or blockade, let alone an amphibious assault?

I think that that is not clear in this administration, especially at a time where the impetus in the court next six, 12 months is to try to reduce trade tensions, try to get talks back on track.

So I think if I were in Taiwan and Japan, I would be slightly worried about what's happening along the Taiwan Strait. Yes.
I mean, I actually have the same feeling as you.

I think that in some way, behind the scenes, the U.S. implicit support for Taiwan is taking a couple of steps back.
I don't want to be too definitive about this. I don't want to call this,

but I think that this is the reason why we see China getting really quite confrontational towards Japan and also pushing Trump as well.

I mean, these statements that Xi Jinping has come out with are rather cryptic, but the way I read them is he's putting pressure on Trump not to get too emboldened about Taiwan.

So I would say, without being definitive, that the U.S. pledge of support for Taiwan is ebbing just a little.

I'm not going to say one way or another whether the US would come in on the side of Taiwan if some kind of a conflagration blew up, but I do think that at the moment, it sounds as if US support is ebbing just a little.

And you quoted Xiu Jinping when he spoke to Trump about this friendship, especially during World War II, where you had Japanese aggression.

Parts of China were occupied, in fact, by the Japanese military. And it reminded me, as you were reading that, of the Rana Middle book about China's experience of World War II and Japan's invasion.

And I sense from Xi Jinping's rhetoric there that he is trying to revive the friendship to some extent, but the great power relations that you saw during World War II, where Japan was seen as the aggressor by both sides.

And I think that he believes that he can play this card with Trump because Trump is somebody who I think believes in great power relations and having good relations with the great powers, be it Russia or China.

And certainly after this call, it seems that Trump is going to go to Beijing in April.

He's going to have the red carpet rolled out for him in China, and we'll have to see what comes up in the discussions. I'm sure Taiwan will be chief among them.

As you rightly say, this is the biggest geostrategic priority for both China and Xi Jinping. And right now, we have an administration in Japan that is looking more like Abe's was a decade ago.

And I think that there, again, will probably be more volatility in the Japan-China relationship because it's hard for me to see Takei seriously walk back some of her statements without really undermining her position.

It was interesting to me that she met with Taiwanese President William Lai back in April before she was elected.

And she's got a lot of pro-Taiwanese members in her parliament as well, in her party, in the LDP. So I think she's got a political incentive to try to remain somewhat strong as well on this issue.

So I don't think it's going away. That's fascinating.
I must say, if Trump really does downgrade the U.S.

relationship with Japan in favor of China in the run-up to this summit between Trump and Xi Jinping in April, that will be a huge shift.

That will be a shift in the tectonic plates that have really kept Asian security together since the Second World War. So this is why I think we spend time on this.

And even though we're talking about effectively shadow play at the moment, these moves or feints and dodges are rather unclear, but it is a vital issue.

So I guess we're focused and sensitive to the shadow play that's going on. Quite right, James.
All right, let's take one last quick break and stay with us.

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Well, welcome back. China is testing a very different kind of economic stimulus program, school holidays.

More than two dozen cities have rolled out new autumn breaks to nudge families into traveling, and early numbers show it's working.

Fortan saw travel jump more than 50%, hotels in Zhejiang and Sichuan booked out and travel agencies had to call in reinforcements. And now the experiment is expanding into winter.

Some regions are introducing a new snow break, up to nine days off in parts of Xinjiang, and bookings are already surging. Flights out of Urumqi and Altai jumped roughly 45 to 50%.

Warm weather destinations like Sanja and Guangzhou more than doubled year on year, and ice and snow provinces are rolling out subsidies and free ski passes to keep the momentum going.

But all of this also exposes the tension at the heart of China's consumption push. Parents barely have any paid leave.
Childcare options are limited and these studied tour trips can cost thousands.

Even with winter breaks lasting up to 45 days in some provinces, families still have to figure out how to actually use that time.

James, I grew up in Australia, so I'm not at all familiar with this landscape, but I have a lot of relatives and cousins, and certainly my understanding was that they were studying all the time and in school all the time.

And when I looked at the numbers, it's pretty shocking. The length of a Chinese school year is 245 days.
This is one of the longest academic school years in the world.

Just for reference, the US is about 180 days, and I think the UK is around 190 days. So these schools in China China have, on average, about 55 to 60 more days than those in the West.

And you don't even factor into that some of the tuition that they're doing outside of school.

So, it's not a surprise then that you don't see the same tradition of kids doing winter breaks, skiing, having these longer tourism-related trips during the off-season.

So, my natural inclination is to be skeptical, but before I get into that, I want to hear what you have to say.

You know, Alice, I'm playing devil's advocate on this one. I'm pretty bullish on China's hope to stimulate its service economy, partly by tourism.

I mean, there are other aspects of the service economy as well.

There's obviously legal and there's health care and there's all kinds of other things, but tourism and entertainment are a very big chunk.

And I think it is in these areas that China is really looking to try to push economic growth. And I must say, you know,

you mentioned I lived in China for quite some time. I always felt that the next holiday was just around the corner in China.
There are,

after last year, when public holidays were increased by two days a year, there are 13 official public holidays.

There's New Year's Day, Spring Festival, Qing Ming, Labor, Dragon Boat, Mid-Autumn, National Day, etc.

And I think that quite a lot of people in China use their holiday creatively and they sort of agglomerate days before and after the national holiday to get a decent bit of time off.

The other thing is that if you've worked in China for 20 years, you would get

the 13 days national holiday and then you would get an allocation based on the minimum that you're entitled to. And in total, that would be 28 paid days of holiday a year.
That's not bad.

That's more than America. It's more than America.
It's more than what I'm getting here in the UK.

And so, you know, I think that China has a good stab at increasing the amount of spending on tourism by ramping up the holidays and making life more fun.

The last thing I'd mention is that all of the statistics that China gives on the amount of holiday that you're entitled to, those are minimum, and that's for state employees.

So if you work for a private company or a foreign company in China that often try to incentivize people to join them by allocating more holiday. You can get quite a bit more than that.

So I think that it is possible that China will be able to sort of boost consumer spending by increasing people's desire to have fun.

And not just fun, have emotionally engaging, personalized, culturally immersive experiences, which I think is what people are

interested in China these days.

I just spent a little bit of time before looking at Chinese camel caravans, tourist camel caravans, padding over the desert dunes to a beautiful crescent lake near Dunhuang.

And that only costs 100 renminbi to go there and back on the back of one of those two humped camels. That's about a bit more than 10 US dollars.
So that's not too bad.

Or you can go cruising down the Lee River in the cast landscaping Guilin, not to mention the Great Wall of China. I think that Chinese are increasingly getting with the tourism zeitgeist.

Just one last thing.

China now has 748 ski resorts. I remember going to the first ski resort in China, and now it's got 748, and you can find pictures of humanoid robots sort of sliding down the slopes.

And, you know, so I think there's quite a lot happening, but you may have a different view. I mean, I know you've been on holiday in China before, though.
Yes,

and certainly can vouch for the fact that people try to extend the number of days, and especially around, I think, family relevant ones like the Mid-Autumn Festival, Qingmingjie, the Tomb Sweeping Festival, Chinese New Year as well.

What I would say, and again, it's somewhat in consonance with what we said at the top of this episode about import substitution, is that we're seeing a tourism substitution effect happen whereby everyday Chinese are deciding to stay in China and do tourism locally, as opposed to going overseas and seeing Paris or seeing America.

They're choosing to go to Xinjiang, they're choosing to go to Yunnan, places where in the last few years there's been a lot of infrastructure to develop those local tourism hubs and ecosystems.

And now there's a social media environment that is highly conducive to people seeing that content and then easily, as you say, and cheaply going there.

My parents, for instance, about two years ago, easily went to Xinjiang. They had a tour bus with a tour guide and went across Xinjiang seeing the landscapes and the steppes.

That I think has been a big quantum shift in the way that tourism occurs in China. You both have the supply side and now I think to your point, James, increasingly the demand side that's there.

My consternation and skepticism is really about whether or not this can meaningfully boost consumption.

A lot of the sort of fears that I have is that structurally, while we do have a push to subsidize and offer offer more services, we're not necessarily empowering the bank accounts of households.

You know, household share of GDP,

consumption share of GDP, that is, it's still around 40%. Japan's is 60%.
The US is 70%. China still has a lot of way to go to get to the Japan-US level for sure.

But it's hard for me to see beyond subsidizing these services how we're going to see an uptick in the consumption share of GDP.

That probably will require more structural solutions, you know, increasing the social security safety net, payments for people, pension schemes that are more reliable and stable.

And then beyond that, demographically, how are we going to get people to continue to have more children?

I'm not sure if having more school holidays will achieve that, but certainly I could see on the margin that this will benefit certain provinces, certain tourism locations, because everyday Chinese are deciding that they want to stay in China and safely, cheaply, reliably consume tourism in China as opposed to outside of China.

For sure.

I mean, it's probably come up with your friends, James, but my family and friends in China regularly say to me, why would I want to go overseas and travel when it's more expensive, less safe, people discriminate against us?

Why not do it at home on your doorstep? Yeah, I mean, I think that's a good point.

And I must say, the other thing I've noticed among my Chinese friends is that they do go on amazing holidays, whether they're in China or abroad.

I mean, I suppose my friendship group would be, you know, kind of middle-class Chinese. So they have the financial wherewithal to do that.
But then I think it's become quite a topic of conversation.

I mean, just as it is in the UK, if you've been somewhere kind of interesting or offbeat or luxurious for holiday, you make sure to tell your co-workers, you know.

And I find that this is one of the motivating factors in China for taking these wonderful holidays, you know. And I'm not always talking about luxury.

I'm talking about adventure, you know, staying in a tent in the middle of the desert with the stars at night or sub-zero temperatures on the Mongolian steppe or, you know, all kinds of things.

Chinese are quite adventurous when it comes to holidays, I always think. For sure.
And if anybody wants to see that, it's all on social media. There's a huge push.

to show the breathtaking landscapes and the adventures and experiences that people can have across all the social media platforms.

But all right, James, it is prediction time. What's your prediction for this week?

Okay, we generally don't want to do a prediction which is the same as our opening topic, but I think the opening topic this time was so important that my prediction is similar to that topic.

I'm going to predict that China's trade surplus, which this year will hit around 1.2 trillion US dollars, will next year in 2026 rise to close to 1.5 trillion US dollars.

I'm not so wedded to the number itself, but the point that I'm trying to make here is that I do not think that the outside world will be able to erect enough protectionist barriers to Chinese exports or to start manufacturing goods more cheaply in their own economies to displace Chinese exports.

So I think next year will be another year in which the word imbalances dominates a lot of the media coverage with regard to China's rise.

And the particular imbalance that everybody will be talking about is the unbelievable runaway Chinese trade surplus. So that's my prediction, Alice.
What about you?

Well, and not too dissimilar from yours, James. It's also in the land of macro.
I would say that in spite of the crash that we're starting to see in fixed asset investment,

that by call it March of next year, we'll we'll start to see more fiscal support for the economy and a return to manufacturing investment-led growth.

I think this anti-involution drive and rebalancing drive will be somewhat temporary, and that ultimately, if they are, according to my previous prediction, going to target around 5% growth for 2026, they're going to have to again lean heavily on manufacturing investment and to some extent infrastructure investment.

So, my twofold prediction is that we'll see a ramp up in manufacturing and infrastructure investment in Q1 and Q2 of next year.

And we'll potentially even see at the March National People's Congress when they announced the government work report that the fiscal deficit target could be increased slightly above 4%, which was the target for this year.

That's my set of macro predictions for 2026.

All right, that's all for this episode. Thank you so much for listening to China Decode.
This is a production of Prof G Media. Our producer is David Toledo.
Our associate producer is Eric Janikis.

Our video editor is Ness Smith Savidoff. Our research associate is Dan Shalan.
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And our executive producer is Catherine Dillon.

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