Another Strong Month
The Artificial Intelligence revolution gets the headlines and is being credited for another robust trade month.
In July, Chinese exports increased 23.9% year-on-year to $397.9 billion. Its monthly surplus was $112.5 billion, putting it on track for another trillion-dollar annual surplus.
“Export and import values remain elevated, helped by soaring global demand for electronics and green tech products,” wrote Capital Economics in a report.
Long Build-Up
But China’s export growth has been goosed by another important export category. It’s captured sizeable market share in exporting industrial equipment and other technology used in manufacturing plants around the world.
After World War Two, the U.S., and later Western European industrial powerhouses like Germany, the Netherlands, and France led the way in developing new manufacturing capacity for the heavy machinery and tools needed to equip factories that make consumer goods.
In the 1980s and 1990s, China imported hundreds of billions of dollars worth of this equipment in order to set up its own manufacturing capacity. When it joined the World Trade Organization in 2001, it was ready to supply the world with goods. That became known as the China Shock. Now, there’s discussion of China Shock 2.0. Part of that is supplying its usual markets of furniture, toys, shoes and clothes. But there’s another segment that China is now occupying.
Factory for Factories
China, the le journal Wall Street reports, has become a “factory for factories.”
Here’s what that looks like in China’s trade statistics for July released on Friday:
Exports of mechanical and electrical products increased 34% year-on-year to $259.2 billion. In the first 7 months, China has exported $1.6 trillion worth of such goods.
These are eye-popping numbers. By comparison, total U.S. exports in June amounted to $208.2 billion.
The Journal writes: “No longer just a producer of low-value consumer goods, China is now exporting more of the higher-value intermediate and capital goods that underpin global manufacturing, such as chips, precision machinery and robotic arms.”
According to a paper by McKinsey cited by the Journal, Chinese shipments of “intermediate and capital goods” increased 25% and 12%, compared to only a 4% increase in the export of consumer goods.
Sales to the European Union increased to $57.9 billion, exports to ASEAN nations increased 38.7% to $75.6 billion, and exports to the U.S. rose to $41.9 billion.
The increase in the export of industrial equipment noted above helps explain why exports to South Korea rose 46.9% to $18.1 billion.
Exports to Japan increased 14.1% to $14.2 billion, and shipments to Taiwan increased 25.1% to $10.3 billion.
AI Investment Is Still Humming
All around the world, countries and companies are racing to build data centers and other parts of networks needed for artificial intelligence capability. Chinese factories are happy to supply them. In July, sales of automatic data processing machines increased 67.9% to $28.2 billion, and exports of integrated circuits increased 116.8% to $38.7 billion. Overall, exports of high-tech products rose 52.9% to $119.3 billon.
Trying to Import More?
China’s big monthly surpluses have drawn criticism from officials in Brussels and Washington. China is listening. Last week, Communist Party leaders suggested Chinese business leaders should “promote more balance trade development.”
The Communist Party’s Politburo, a major decision-making body led by President Xi Jinping, also called on the country to “promote more balanced trade development” after a meeting last week.
And imports did rise 27.5% year-on-year in July, to $285.4 billion. Purchases from the U.S. increased 15.4% to $13.9 billion. Imports from the EU decreased 1.3% to $24.2 billion.
China itself is very interested in acquiring more AI capacity from all around the world. Imports of automatic data processing machines rose 194% to $20.6 billion. Imports of high-tech goods rose 58.8% to $114.1 billion.
It also needs inputs for its more demanding agricultural sector. Imports of fertilizers increased 107% to 1.4 million Tons.
But the book seems to be slowly closing on the dream that big manufacturers in Europe and the U.S., especially automakers, once had of selling to the Chinese market.
In July, China imported 43,267 cars, down 12.8% from the same month in 2025.