China's October trade surplus narrows as imports surge

China's monthly trade surplus narrowed to $105.3 billion in October, the lowest level since April. The contraction from September's $133.5 billion surplus came as imports surged at their fastest pace in over two years and export growth showed signs of cooling.

Imports surge on energy and tech demand

Imports grew 41.6% in October from a year earlier, accelerating from 31% in September and surpassing analyst forecasts. The surge was driven by robust demand for high-tech products, critical minerals, and energy supplies. Tianchen Xu, senior economist at the Economist Intelligence Unit, identified these categories as the primary drivers.

Imports of high-tech products alone soared 72% in value. Energy imports also saw dramatic increases by value compared to October last year.

This import acceleration occurs alongside evolving trade policies from key partners. The European Union has agreed to limit imports of Chinese hybrid vehicles over the next few years, starting December 1.

Exports remain strong but show signs of cooling

Exports rose 35.2% year-on-year in October, exceeding expectations but slowing from September's 36.3% growth. The global artificial intelligence investment boom has supported sales of Chinese technology products, including semiconductors and electronics. Overseas demand for these high-tech goods and automobiles underpinned the overall performance.

Trade with major partners showed mixed dynamics. Exports to the United States grew 32.9% while imports from the U.S. grew 35%, resulting in a slightly narrowed bilateral surplus of $32.7 billion. The picture with Europe was different. Exports to the region grew 24.4% while imports dropped more than 4%, widening China's surplus with Europe to $33.4 billion.

Nguyen Hoang Nam, China economist at Capital Economics, estimated a seasonally adjusted 2% month-on-month fall in exports. He noted that "Momentum looks to have slowed."

Trade tensions and domestic slowdown pose risks

Persistent domestic weakness threatens the sustainability of China's export-driven trade performance. Household consumption remains soft, with retail sales growing just 1.1% in September. Factory activity shrank unexpectedly in October due to cooling overseas orders, according to official data. A private survey also indicated that new domestic and export orders for goods slowed in October compared to the previous year.

This domestic slowdown intensifies competition among manufacturers, pressuring businesses to cut prices amid product standardization and concerns over declining quality. Overcapacity, raised domestic savings, and weak consumption are forcing China to rely more heavily on overseas markets.

External trade barriers add another layer of risk. European leaders have called for further trade restrictions on China following the hybrid vehicle agreement. U.S. and European trade policies have created significant difficulties for Chinese businesses expanding overseas. Analysts warn that any correction in the artificial intelligence industry could reduce chip and electronics demand, hurting a key export pillar. Trade curbs by the European Union pose an important risk amid heightened U.S. trade barriers and tariffs.

Despite these headwinds, the cumulative trade surplus for the first ten months of the year surpassed $1.04 trillion. Exports are expected to remain resilient through the remainder of the year, helping offset persistent weakness in domestic demand. This performance supports forecasts that China's economy will meet its 4.5% to 5% annual growth target. The widening annual surplus, however, intensifies concerns among trading partners about the export-import imbalance.

International diplomacy continues to handle these tensions. Washington and Beijing agreed in September to extend their trade truce by two months to January, a deal that included export-control waivers for critical minerals and special port fees. Trade is expected to feature prominently in upcoming discussions at the Asia-Pacific Economic Cooperation summit in Shenzhen and in planned talks between U.S. President Donald Trump and Chinese President Xi Jinping. China has stated that any expansion of its purchases of U.S. agricultural goods would depend on the implementation of an agreed reciprocal tariff-reduction arrangement.