China's export engine remains roaring through a combination of tax rebates and a deliberately weak currency. This strategy sustains domestic growth but fuels tension with trading partners, particularly Europe, which faces a deficit exceeding $1.1 billion daily. Brussels officials are pressing Beijing about government subsidies and low-interest loans that flood markets with inexpensive goods.
Beyond subsidies, the renminbi's weakness makes Chinese exports cheaper overseas, while tax rebates refund exporters hundreds of billions annually, further lowering costs. Both policies have become difficult to unwind, with the currency down over 14 percent in inflation-adjusted terms since early 2022. Over the same period, China's trade surplus has nearly doubled.
A weaker currency raises import costs for Chinese consumers, squeezing households already reluctant to spend. Export tax rebates, reaching $318.2 billion last year or 1.5 percent of the economy, drain government revenues strained by a housing slump. With China on track to match last year's record $1.19 trillion trade surplus, allowing the renminbi to strengthen and reducing rebates could ease overseas pressure.
However, either step risks damaging one of the economy's few remaining growth engines. Prominent economists, including Shen Guobing of Fudan University, argue a stronger currency could lower import costs. Beijing remains cautious, aware that meaningful appreciation carries significant economic risks.
Source: New York Times Business · Summarized by HeadlinesBriefing