Large economies do not generally rely heavily on foreign demand,...
Brad Setser@Brad_Setser
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Oct 21, 2025
~1 min read
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Large economies do not generally rely heavily on foreign demand, tis true. That is what makes China recent heavy reliance on foreign demand significant -- the soaring goods surplus and the unusually large contribution from net exports highlight how China is still relying on exports to offset domestic weakness
Glenn@GlennLuk
Brad’s underlying thesis here is to prove that China’s economy “relies on foreign demand” to grow but actually what the last 2 years of data shows is consumption and net exports as offsetting trends.
When contributions from net exports fall, consumption rises. When net exports rises, consumption contribution falls.
We can ignore the weird pandemic period where everything got messed up. But prior to the pandemic, consumption was steady and driving the majority of GDP contribution.
This indicates other much more significant inputs (both endogenous and exogenous) at play beyond the “foreign demand drives China’s economy” trope.
China is a continent-sized economy, and for large economies trade/foreign demand typically plays a much lower role than in smaller economies.
When contributions from net exports fall, consumption rises. When net exports rises, consumption contribution falls.
We can ignore the weird pandemic period where everything got messed up. But prior to the pandemic, consumption was steady and driving the majority of GDP contribution.
This indicates other much more significant inputs (both endogenous and exogenous) at play beyond the “foreign demand drives China’s economy” trope.
China is a continent-sized economy, and for large economies trade/foreign demand typically plays a much lower role than in smaller economies.
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The surge in China's exports of manufactures (which is even bigger in real terms recently as export prices are falling) highlights how China pivoted back to exports as growth driver when investment faltered -- & it is now experiencing a bit of blowback from its trading partners
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This Foreign Affairs piece is somewhat misleadingly titled -- it really is about how the end of debt fueled investment in property risked leading to Chinese economy that doubled down on exports as a source of growth. It has held up well
foreignaffairs.com/china/beijing-…
foreignaffairs.com/china/beijing-…
