The Deep Logic Behind China's Trade Surplus and Deflation Divergence and A-Shares Investment Strategy

China’s trade surplus reached

in the first 11 months of 2024, a record in human history, with a year-on-year growth of 21%. This scale is equivalent to the sum of the [1][2]. However, in sharp contrast to this “external heat” is the “internal cold”—domestic CPI was only 0.7%, and PPI fell by 2.2% year-on-year, continuing to show deflationary trends [3].

This phenomenon of

continued into 2025. Although the Shanghai Composite Index rose by 18.39% for the whole year [0], foreign institutions still held a conservative view on Chinese stocks as a whole. Nomura直言: “The fundamentals of Chinese stocks as a whole still face challenges” [4].

---

:

• Exports to the US:
  down 18.9%
• Exports to the EU:
  up 8.1%
• Exports to ASEAN:
  up 13.7%
• Exports to Africa:
  up 27.2%
  [2]

This structural change brings two key impacts:

1. Diversification of Settlement Currencies
   : Exports to emerging markets like ASEAN and Africa are mostly settled in foreign currencies such as USD and EUR instead of RMB, making it impossible for the surplus to be directly converted into domestic liquidity.
2. Re-layout of Industrial Chains
   : Some exports to the US are realized through “transshipment” via Southeast Asia. Although tariffs are avoided, the added value is diverted [2].

: First 11 months of 2024

• Total exports: up
  5.7%
• Imports (measuring domestic demand): up only
  0.2%
  [2]

This reveals a key truth:

. Weak imports directly reflect insufficient domestic demand and investment contraction, which is precisely one of the root causes of deflation.

:

1. Surge in Corporate Overseas Investment
   : Against the backdrop of a stronger USD, Chinese enterprises have increased their overseas investment layout, and the scale of capital outflows has hit a historical high. Charts show that the scale of RMB cross-border outflows reached a peak of
   25,000 billion RMB
   in 2023 [5].

2. Significant Decline in Foreign Exchange Settlement意愿
   : Data shows that since mid-2022, Chinese enterprises’ willingness to settle overseas investment has continued to weaken, and there has even been a trend from net foreign exchange settlement to net foreign exchange purchase [5].

3. Increased Attractiveness of USD Deposits
   : The widening interest rate spread between domestic and foreign USD deposits has prompted enterprises to hold USD instead of settling foreign exchange, further weakening the conversion of surplus into domestic liquidity [5].

: Trade surplus → Enterprises hold USD → Increased overseas investment → Reduced domestic money supply → Aggravated deflationary pressure.

: Electric vehicles, lithium batteries, and photovoltaic cells have become the main export products, and exports of high-tech products have grown rapidly [1]. The characteristics of these industries are:

• Highly Automated
  : Capacity utilization rate is only 75%, but new employment is limited.
• Capital-Intensive
  : Large investment scale but weak labor absorption capacity.
• Overcapacity
  : Domestic price wars are fierce, profits are compressed, and employees can hardly enjoy the dividends of the surplus [1].

: Textile and garment exports fell by 1.2%, production lines are moving overseas, and relevant practitioners say: “Being able to keep one’s job is already a great fortune” [1].

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Foreign institutions have a clear consensus:

. Nomura, BlackRock and other institutions unanimously favor the following directions [4]:

• AI and Cloud Computing
  : High automation, low proportion of labor costs; deflation is instead beneficial to cost control.
• Robotics and Advanced Manufacturing
  : Aligns with the trend of “machine replacing humans”; capacity expansion is not restricted by deflation.
• Power Infrastructure
  : Rigid demand for data centers, charging piles, etc.

• Technology enterprises with global brand power.
• Infrastructure and equipment manufacturing benefiting from the “Belt and Road Initiative”.
• Leading enterprises in the new energy industry chain that can seize international market share.

:

• “Anti-involution” is still ongoing
  : Nomura points out: “Chinese large enterprises are trapped in vicious competition, but profitability has not improved” [4].
• Consumption Recovery Lags
  : UBS predicts that A-shares consumer stocks will not have a layout opportunity until
  the second half of 2026
  , when corporate profit improvement can drive residents’ income and consumption willingness to rise [4].
• “Trade-in” Overdraft Effect
  : Policy stimulus has partially overdrafted future consumption, and consumer stocks are under pressure in the short term [4].

: A-shares profit growth rate is expected to rise from 6% in 2025 to 8% in 2026, driven by [4]:

• Nominal GDP growth rate increase.
• Narrowing PPI decline pushes up revenue.
• “Anti-involution” drives profit margin recovery.
• Continuous introduction of support policies.

: Lay out policy-supported independent tech sectors in advance; wait for profit improvement signals to be confirmed before shifting to consumer stocks.

: Although the trade surplus has hit a record, domestic liquidity has not improved同步. The reasons are:

1. Decline in foreign exchange settlement willingness leads to slower growth in foreign exchange reserves.
2. Corporate overseas investment diverts funds.
3. The central bank’s monetary policy remains “moderately loose” [2].

: Market liquidity shows —policy-supported hot sectors (such as AI, new energy) have sufficient liquidity, while traditional industries face a “water shortage” dilemma.

:

• Significant Profit Growth
  : Strong profit growth in the past three years, but stock price growth lags behind profit growth, leaving room for valuation repair [4].
• HK Tech Stocks Have Been Re-evaluated
  : The previous valuation increase was large, and the subsequent upside space may be less than that of A-shares [4].

: A-shares tech sector has both and , and is more defensive in a deflationary environment.

---

:

1. Independent Tech
   : AI chips, cloud computing, robotics, advanced manufacturing.
2. Power Infrastructure
   : Data centers, UHV, energy storage.
3. High Dividend Defensive
   : Public utilities, operators with stable cash flow.

:

• Traditional cyclical industries (greatly impacted by deflation).
• Sectors highly dependent on domestic consumption (recovery lags).
• Industries with serious overcapacity and fierce “involution”.

:

• Whether the decline in PPI continues to narrow.
• Whether corporate profit growth stabilizes and rebounds.
• Whether residents’ income and consumption willingness improve marginally.

: If the above indicators show positive changes, gradually increase allocations to consumer stocks and financial stocks.

:

• Beneficiaries of consumption upgrading (mid-to-high-end liquor, medical services, cultural tourism).
• Banking and insurance (profits improve with economic recovery).
• Real estate chain (if policy effects appear).

---

1. Divergence Between Trade Surplus and Deflation Will Continue
   : This is a阶段性特征 of China’s economic structural transformation and is difficult to fundamentally change in the short term. The contradiction between export structure upgrading and weak domestic demand will coexist for a long time.
2. A-Shares Opportunities Lie in “Structural Prosperity”
   : Overall opportunities are limited, but there are significant excess return opportunities in areas such as independent tech, overseas competition, and high dividends.
3. Investment Logic Needs to Shift from “Pro-Cyclical” to “Anti-Deflation”
   : Focus on enterprises with strong cost control capabilities, high overseas revenue ratios, and strong policy support.
4. Wait Patiently for the Inflection Point of Consumer Sectors
   : The full opportunity for consumer stocks needs to wait until corporate profit improvement is transmitted to residents’ income growth, which is expected in the second half of 2026.
5. Policy is the Most Important Variable
   : The Central Economic Work Conference has clearly stated “adhere to domestic demand-led growth” [1]. If stimulus policies exceed expectations, it may accelerate domestic demand repair and advance the layout of consumer sectors.

: In the complex environment of coexisting deflation and surplus, A-shares investment should , and focus on the three directions of .

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[0] Jinling API Data—Stock indices, financial data, technical analysis and Python calculation results

[1] Yahoo HK Finance—“Macro Vision | Trillion-Dollar Surplus Brings Huge Challenges (Qiu Guqi)” (https://hk.finance.yahoo.com/news/宏觀視野│萬億順差帶來巨大挑戰(邱古奇)-050039830.html)

[2] CNN via Yahoo HK Finance—“Under Trump’s Tariff Sword, China’s Exports Remain Unabated Thanks to Market Strategy Shift” (https://hk.finance.yahoo.com/news/cnn-特朗普關稅大刀下-中國靠市場戰略轉向-出口不減反增-091004450.html)

[3] Bloomberg—“China’s Consumer Prices Rebounded Without Easing Deflation Fears” (https://www.bloomberg.com/news/articles/2025-12-10/china-consumer-inflation-picks-up-to-fastest-pace-in-over-a-year)

[4] Yahoo HK Finance—“Nomura Expects Tech to Catch Up with US, Favors Cloud Computing and Robotics; Chinese Tech Stocks Gain Popularity, Welcomes DeepSeek Moment Again” (https://hk.finance.yahoo.com/news/野村料技術追上美國-偏好雲計算機械人-中資科技股受捧-再迎deepseek時刻-190600176.html)

[5] Bloomberg Data Charts—Visualization of historical data such as China’s cross-border capital outflows, changes in corporate overseas investment settlement willingness, and USD/RMB exchange rate trends