1 What China’s record $1.2 trillion surplus actually says about the Chinese economy
China hits record $1.2 trillion surplus
On Jan. 14, the PRC General Administration of Customs released trade data for December 2025 and for the full year 2025.
Trade data for December 2025 (single month)
- Total exports increased 6.6 percent year-on-year to $357.78 billion (better than the expected 3.1 percent and higher than November’s 5.9 percent).
- Total imports increased 5.7 percent year-on-year to $243.64 billion (significantly higher than November’s 1.9 percent).
- Trade surplus was $114.14 billion.
- Total imports and exports for the month (RMB-denominated) were 4.26 trillion yuan, a new record high for a single month.
Trade data for January–December 2025
- Total trade value increased 3.8 percent year-on-year to exceed 45 trillion yuan for the first time.
- Exports increased 5.5 percent year-on-year to $3.77 trillion.
- Imports stabilized at $2.58 trillion with a flat growth rate.
- Trade surplus increased more than 20 percent to $1.19 trillion, a record high.
China’s exports to major trading partners (January–December 2025)
- European Union: Up 8.4 percent, accounting for 14.8 percent of total exports.
- United States: Down 20 percent, accounting for 11.1 percent of total exports.
- ASEAN: Up 13.4 percent, accounting for 17.6 percent of total exports.
- Hong Kong: Up 15.5 percent, accounting for 8.9 percent of total exports.
- Russia: Down 10.4 percent, accounting for 2.7 percent of total exports.
- Latin America: Up 7.4 percent, accounting for 7.9 percent of total exports.
- Africa: Up 25.8 percent, accounting for 6.0 percent of total exports.
- RCEP members: Up 9.2 percent, accounting for 50.7 percent of total exports.
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At a press conference held by the State Council Information Office on Jan. 14, Wang Jun, deputy director of the General Administration of Customs, said that China’s foreign trade in 2025 had five key characteristics:
- Record-breaking scale: Total annual imports and exports exceeded 45 trillion yuan, a historical high. Also, China continues to rank as the world’s largest trader in goods.
- More diversified markets: China conducted trade with more than 240 countries and regions, with import and export growth recorded with over 190 of them. Trade with Belt and Road partner countries reached 23.6 trillion yuan, up 6.3 percent from a year ago and accounting for 51.9 percent of total trade. Trade with ASEAN, Latin America, and Africa amounted to 7.55 trillion yuan, 3.93 trillion yuan, and 2.49 trillion yuan, growing 8 percent, 6.5 percent, and 18.4 percent respectively.
- Exports moving toward new and higher-end products: Exports of high-tech products increased 13.2 percent to reach 5.25 trillion yuan. Exports of the “new three” (electric vehicles, lithium-ion batteries, photovoltaics) and wind power equipment rose 27.1 percent and 48.7 percent respectively. Exports of self-owned brand products grew 12.9 percent, with their share of total exports increasing by 1.4 percentage points.
- Imports maintained growth: Despite falling international prices, China’s imports recorded growth for three consecutive quarters starting from the second quarter.
- Stronger business vitality: More than 780,000 market entities recorded import or export activity. Private enterprises continued to serve as the main engine of foreign trade, with imports and exports totaling 26.04 trillion yuan, up 7.1 percent from the previous year and raising their share of total trade to 57.3 percent.
Wang Jun also noted that China’s trade performed particularly strongly in three areas:
- High-tech products: Exports rose 13.2 percent year on year. Exports of specialized equipment, high-end machine tools, and industrial robots increased 20.6 percent, 21.5 percent, and 48.7 percent respectively. Notably, China exported more industrial robots than it imported, becoming a net exporter of industrial robots.
- Green sectors:
- Green energy: Exports of lithium batteries and wind power equipment grew 26.2 percent and 48.7 percent respectively.
- Green mobility: Exports of electric motorcycles and bicycles rose 18.1 percent, while exports of electric railway locomotives increased 27.1 percent.
- Green production: Exports of industrial gas purification equipment grew 17.3 percent, and electric forklifts rose 5.2 percent.
- Intermediate goods trade: Trade in intermediate goods expanded rapidly in 2025 and became a key driver of export growth.
Our take
1. At a glance, Beijing’s official 2025 trade data appears to indicate that China’s foreign trade has demonstrated surprising structural resilience amidst strong external pressures and geopolitical volatility. China’s $1.2 trillion trade surplus also reflects the PRC’s transition from the exporter of finished goods to the exporter of industrial capacity.
The official trade figures reveal that China’s exports to the U.S. saw their steepest decline (down 20 percent) since statistical tracking began in 1994, while China’s exports to other regions surged. This shift involves more than just a direct redirection of trade flows caused by tariff barriers, and obscures a deep-seated secondary migration of global supply chains and a highly complex game of entrepot trade maneuvering.
2. China’s exports are pivoting from finished products to industrial capacity migration. While trade between China and the U.S. is contracting, the ultimate destination of goods produced from industrial capacity migration remains the U.S. market.
i) Renewed trade tensions appear to be the driving factor behind the contraction of China’s exports to the U.S. in 2025. China-U.S. trade relations fell into de facto “embargo-style” confrontation following the return of Donald Trump to the White House and his move to impose reciprocal tariffs on other nations. While both sides reached a détente at the end of October — under which the US rolled back some tariffs to the 10 percent to 15 percent range in exchange for China resuming soybean purchases and lifting rare-earth restrictions — the stability of bilateral trade had already been fundamentally eroded by earlier U.S. pressure.
Traditional consumer goods were hit the hardest in the 20 percent decline in China’s exports to the United States. Low-margin industries such as toys (down 12.7 percent), apparel and footwear (down 11.3 percent), and furniture (down 6.1 percent) saw their profit margins completely wiped out by high tariffs and increasingly strict regulation of cross-border parcels (following the removal of the de minimis exemption). In addition, smartphone exports fell by 35 percent, signaling an accelerated shift of assembly lines for high-end consumer electronics to non-Chinese locations.
ii) Surges in China’s exports to Africa, ASEAN, the EU, and Latin America often outpaced local GDP growth. This suggests that these regions are serving as “assembly hubs” or channels for “origin laundering” (transshipment) for Chinese companies.
Africa
China’s exports to Africa reached $225 billion in 2025, making Africa the fastest-growing destination for Chinese exports. Even so, exports to Africa accounted for only 6 percent of China’s total exports, less than exports to Hong Kong (8.9 percent).
China’s exports to Africa are closely linked to Africa’s industrialization drive and the relocation of Chinese production capacity overseas. Industrialization in Africa generates enormous demand for infrastructure. In the first half of 2025, engineering contracts signed between Africa and China totaled a record-high $30.5 billion. This directly drove a 63 percent year-on-year increase in exports of construction machinery (such as excavators and road rollers) to Africa.
Energy shortages across Africa also boosted demand for electricity, driving growth in Chinese green energy equipment exports. In sub-Saharan Africa, orders for Chinese solar panels, inverters, and energy storage systems rose by 60 percent. As the world’s only supplier with a complete industry chain, China has captured near-exclusive benefits.
There are also suspicions of “origin-laundering” in China’s exports to Africa. Data comparisons show that China’s export growth to some African countries (such as Morocco, Egypt, and Liberia) far exceeded their GDP growth rates. For example, Morocco’s GDP growth in 2025 is estimated at 4.4 percent, yet China’s exports to Morocco surged by 24 percent. It is therefore reasonable to infer that China is using Morocco’s and Egypt’s free trade agreements with the U.S. and the EU to bypass trade barriers.
ASEAN
ASEAN remained China’s largest export destination in 2025, with exports reaching $665.21 billion (accounting for 17.6 percent of total exports) and surpassing China’s exports to the EU ($559.95 billion). Unlike Africa’s “end-use” model, ASEAN plays more of a role as an “assembly hub” and “buffer” for China in global supply chains.
For example, Vietnam recorded cumulative export growth of 22.4 percent in 2025, making it the most dynamic node within ASEAN. Vietnamese customs data show that Vietnam’s trade deficit with China continued to widen in 2025, with major imports including integrated circuits, machinery parts, and chemical inputs. While U.S. direct imports from China fell by 20 percent, U.S. imports from Vietnam recorded double-digit growth. This indicates that China–U.S. trade has not disappeared but has instead transformed into longer and more opaque supply chains.
EU and Latin American markets
In 2025, China’s exports to the EU grew by 8.4 percent, and exports to Latin America grew by 7.4 percent. These two markets showed differing policy responses to China’s “green premium” products.
The EU, on the one hand, is guarding against dumping of Chinese goods, while on the other hand remaining dependent on Chinese products. In 2025, the EU imposed anti-subsidy tariffs on Chinese electric vehicles and strengthened scrutiny of high-tech supply chains. However, the unexpected resilience of trade with Germany (exports up 10.5 percent) and Italy (exports up 10.9 percent) suggests that the coupling between Europe’s industrial system and Chinese manufacturing is far stronger than political rhetoric implies.
China’s export growth to the EU was concentrated mainly in green energy equipment and high-end manufacturing. Exports of Chinese wind power turbines to the EU rose by 48.7 percent. As the EU accelerates its “zero-emissions” transition, China’s wind power industry, leveraging its scale advantages, has become an important supplement to Europe’s energy security. At the same time, China’s industrial robot exports exceeded imports for the first time, with their penetration into Europe’s factory automation upgrades rising significantly.
Demand for Chinese goods in Latin America showed sharp market differentiation. In the first five months of 2025, Brazil imported more than 130,000 Chinese electric vehicles, a tenfold year-on-year increase. The launch of local factories by BYD and Great Wall Motor in Brazil drove large-scale exports of related production-line equipment. Although China’s exports to Mexico grew cumulatively by 9.5 percent, by early December Mexico — under U.S. pressure — raised tariffs on goods from non-FTA countries (up to 50 percent), aiming to prevent Chinese products from entering the US through Mexico’s “back door.” This marks a profound geopolitical shift in trade policy across Latin America.
iii) The instability of China-U.S. trade — particularly after the Trump administration imposed reciprocal tariffs (or “terminal tariffs” [死亡總關稅] in the parlance of some Chinese businesses) in 2025 — has led companies with requisite resources and a foothold in the U.S. market to relocate their production capacity out of China. Consequently, while traditional export sectors such as luggage, toys, and footwear suffered double-digit declines in 2025, the export of general machinery and equipment actually grew by 6.1 percent. This increase reflects the massive shipment of production lines and “tools of the trade” required to set up new manufacturing hubs abroad.
3. China’s record-high $1.2 trillion trade surplus in 2025 is not necessarily an indicator of an improving economy. Significant contradictions between trade data and other macroeconomic indicators reveal a structural crisis hidden behind the “export boom.”
i) China’s record trade surplus in 2025 does not match its producer price index for the year, which fell by 2.6 percent. This suggests that Chinese manufacturers are sacrificing prices to maintain global market share. Declines in processing industries (down 1.6 percent) and consumer durables (down 3.5 percent) reflect a “growth without profit” situation.
Also while China’s export volume rose, industrial profits for the first 11 months of 2025 grew by a mere 0.1 percent. Traditional sectors suffered double-digit profit collapses (textiles and apparel: down 27.1 percent; furniture: down 22.7 percent; footwear: down 15.7 percent), whereas computer and electronics grew by 15.0 percent. This structural imbalance shows that export profits are now highly concentrated in high-end manufacturing, leaving traditional labor-intensive industries struggling to survive.
ii) Typically, a $1.2 trillion surplus should drive a massive increase in reserves. Yet China’s foreign exchange reserves remained stalled between $3.2 trillion and $3.3 trillion in 2025. Data on banks’ foreign exchange settlements and sales shows that export firms are keeping dollars in overseas accounts rather than repatriating them through the central bank’s settlement system. In 2025, the current account surplus was $308.3 billion, but the bank settlement surplus was only $196.6 billion, meaning 36.2 percent of foreign exchange earnings did not return to China.
Meanwhile, capital outflows continued. Foreign direct investment recorded a net outflow of $47.1 billion in 2025, marking the third consecutive year of net outflows (a cumulative $132.7 billion).
iii) Beijing’s official export data may contain a substantial amount of fictitious trade.
Take Hong Kong as an example. In 2025, China’s exports to Hong Kong ($335.64 billion) grew by 15.5 percent, while imports from Hong Kong ($31.7 billion) surged by 72.6 percent, and the trade surplus increased by 11.5 percent. This massive spike in imports from Hong Kong — occurring while overall national imports remained flat (0.0 percent) due to weak domestic demand — is highly irregular.
Hong Kong has long been an important channel for capital outflows from the mainland. Companies can convert large amounts of renminbi assets into foreign currency and keep them offshore by over-invoicing imports from Hong Kong, especially for items prone to value manipulation such as high-tech components or gold.
Another long-standing loophole is the use of Hong Kong for “round-tripping” to fraudulently claim export tax rebates. Companies may overstate export prices or even fabricate export transactions (such as “one-day tours,” where goods are shipped to Hong Kong and immediately re-imported, or repeatedly moving high-value, low-volume items like chips across the border) to obtain export tax rebates. With weak domestic demand, export tax rebates have become a crucial source of profits for some firms.
Local governments, driven by performance targets, could also have participated in falsifying export data. According to a Yicai report on Dec. 29, 2025, some local governments offer fiscal rewards for exports (typically 0.03 to 0.05 yuan per $1 exported) to meet foreign trade targets. Through “bought-invoice exports,” (買單出口) companies register genuine exports that actually occur in coastal regions under the names of inland shell companies and declare them as exports to Hong Kong. This practice inflates export figures without generating jobs, tax revenue, or real production.
4. In summary, China’s 2025 trade data present a paradoxical situation in which goods were shipped, numbers rose, but money did not return and profits disappeared. This reflects the severe transition pressure facing the Chinese economy. While external demand remains strong, domestic deflation and capital flight are negating the dividends of trade. Relying solely on inflated export figures will be insufficient to sustain China’s long-term economic health.
2 China’s 2025 financial data reveals a deepening liquidity trap and structural contraction
PBoC data for Dec 2025 and the full year
On Jan. 15, the People’s Bank of China released China’s financial data for December 2025 and the full year.
Aggregate financing to the real economy
December 2025
- Aggregate financing increased by 2.21 trillion yuan, down from 2.86 trillion yuan a year earlier (down 22.7 percent).
- Renminbi loans to the real economy came in at 910 billion yuan, down 10 billion yuan year-on-year (down 1.0 percent).
- Net corporate bond financing fell to 150 billion yuan, down from 340 billion yuan a year earlier (down 55.9 percent).
- Net government bond financing reached 690 billion yuan, up from 660 billion yuan (up 4.5 percent).
January–December 2025
- Total increase in aggregate financing reached 35.60 trillion yuan, up from 32.26 trillion yuan a year earlier (up 10.2 percent).
- RMB loans extended to the real economy rose by 15.39 trillion yuan, compared with 15.84 trillion yuan in the same period last year.
- Net corporate bond financing amounted to 2.39 trillion yuan, an increase of 480 billion yuan year-on-year (up 25.1 percent).
- Net government bond financing totaled 11.2 trillion yuan, up 1.86 trillion yuan from last year.
Money supply
- Broad money supply (M2) increased 8.5 percent year-on-year to 340.29 trillion yuan in December 2025.
- Narrow money supply (M1) increased 3.8 percent year-on-year to 115.51 trillion yuan in December 2025.
RMB loans
- New RMB loans in December 2025 totaled 910 billion yuan, down from 990 billion yuan a year earlier (down 8.1 percent).
- New RMB loans in January–December 2025 amounted to 16.27 trillion yuan, compared with 18.09 trillion yuan in the previous year (down 10.1 percent).
- Household Loans
- December 2025: Household loans fell by 91.6 billion yuan, compared with an increase of 350 billion yuan a year earlier (an absolute swing of negative 441.6 billion yuan).
- January–December 2025: Household loans increased by 441.7 billion yuan, a 83.7 percent decline from the 2.72 trillion yuan increase a year earlier.
- Short-term household loans
- December 2025: Down 102.3 billion yuan, compared with an increase of 58.8 billion yuan a year earlier.
- January–December 2025: Net decrease of 835.1 billion yuan, compared with an increase of 473.2 billion yuan last year.
- Medium- and long-term household loans
- December 2025: Up 10 billion yuan, compared with an increase of 300 billion yuan a year earlier.
- January–December 2025: Increased by 1.28 trillion yuan, down from 2.25 trillion yuan in the previous year.
- Corporate (non-financial enterprise and public institution) loans
- December 2025: Corporate loans rose by 1.07 trillion yuan, compared with 490 billion yuan a year earlier (up 118 percent).
- January–December 2025: Corporate loans increased by 15.47 trillion yuan, up from 14.33 trillion yuan last year.
- Short-term corporate loans
- December 2025: Increased by 370 billion yuan, compared with a decrease of 20 billion yuan a year earlier.
- January–December 2025: Increased by 4.81 trillion yuan, compared with 2.61 trillion yuan last year.
- Medium- and long-term corporate loans
- December 2025: Increased by 330 billion yuan, compared with a decrease of 210 billion yuan a year earlier.
- January–December 2025: Increased by 8.82 trillion yuan, down from 10.08 trillion yuan last year.
- Bill financing
- December 2025: Increased by 350 billion yuan, compared with 450 billion yuan a year earlier.
- January–December 2025: Increased by 1.66 trillion yuan, compared with 1.57 trillion yuan last year.
RMB deposits
- December 2025: RMB deposits increased by 1.68 trillion yuan, compared with a 1.4 trillion yuan decline a year earlier.
- January–December 2025: RMB deposits rose by 26.41 trillion yuan, up from 17.99 trillion yuan last year.
- Household deposits
- December 2025: Increased by 2.58 trillion yuan, compared with 2.19 trillion yuan a year earlier (up 17.8 percent).
- January–December 2025: Increased by 14.64 trillion yuan, compared with 14.26 trillion yuan last year.
- Non-financial corporate deposits
- December 2025: Increased by 1.22 trillion yuan, down from 1.8 trillion yuan a year earlier (down 32.4 percent).
- January–December 2025: Increased by 2.31 trillion yuan, compared with a decline of 29.43 billion yuan last year.
- Fiscal deposits
- December 2025: Fell by 1.38 trillion yuan, compared with an increase of 1.67 trillion yuan a year earlier.
- January–December 2025: Increased by 657.9 billion yuan, compared with a decline of 212.5 billion yuan last year.
Outright reverse repo operations
The PBoC conducted 1.1 trillion yuan of three-month outright reverse repos on Jan. 8, followed by 900 billion yuan of six-month outright reverse repos on Jan. 15. By the end of January, the stock of bonds held by the central bank through outright reverse repo operations is expected to reach 6.2 trillion yuan.
Our take
1. China’s macro-financial environment from 2025 through early 2026 is characterized by extreme complexity and profound paradoxes. On the one hand, headline aggregate financial indicators appear strong. RMB deposit growth has hit a historic high, surging 46.8 percent year-on-year. Meanwhile, growth in total social financing and M2 both remained above 8 percent, signaling an extremely accommodative monetary stance.
On the other hand, vitality at the micro level has moved in the opposite direction. Credit demand from firms and households has diverged sharply, with large amounts of funds settling within the financial system itself. These funds are circulating idly or being used for arbitrage rather than being transformed into capital formation in the real economy.
2. The most striking data point in the PBoC’s 2025 data is not credit growth, but the abnormal spike in RMB deposit growth, which increased by 26.41 trillion yuan. This phenomenon indicates that the transmission mechanism of the real economy is blocked, leading to “capital idling.”
i) In 2025, net government bond financing reached 13.84 trillion yuan, contributing significantly to the annual increase in total social financing and serving as the primary driver of overall financing expansion. Meanwhile, RMB deposits increased by 8.42 trillion yuan compared with the previous year — an amount equivalent to 68 percent of net government bond financing. This implies that a huge volume of government debt was issued, with funds first entering the treasury (fiscal deposits) and then being transferred through infrastructure investment and special bond expenditures to project companies (typically local government financing vehicles or state-owned enterprises).
Low expected returns on real-sector projects and persistently negative PPI (producer price index) growth in 2025 meant that firms lacked incentives to expand production after receiving fiscal funds. Instead of becoming liquid deposits (M1) that would circulate through the economy, these funds were converted into time deposits or structured deposits to earn interest income. This pushed up M2 (broad money) and led to a surge in total deposits. This also explains why, despite increased fiscal spending, M2 grew by 8.5 percent year on year, while M1 grew by only 3.8 percent. Under a normal economic cycle, firms would quickly use such funds for procurement and wage payments, accelerating money circulation and boosting M1.
Another major source of deposit growth was the household sector. Despite multiple rounds of deposit rate cuts in 2025, household deposits only increased by 380 billion yuan. This apparent “rate insensitivity” reflects a defensive restructuring of household balance sheets. Against a backdrop of unstable expectations in the property market and heightened volatility in wealth-management product net values, deposits have come to be seen as the only safe-haven asset, entrenching the phenomenon of weak demand as Chinese households build up “excess savings.”
ii) The PBoC’s 2025 financial data also reveals a large arbitrage loop that severely weakens the transmission efficiency of monetary policy. In December 2025, the weighted average interest rate on newly issued corporate loans fell to around 3.1 percent, with some higher tier central enterprises and state-owned enterprises obtaining rates below 3 percent. Meanwhile, yields on structured deposits of certain banks, large-denomination certificates of deposit, or wealth management products remained in the 2.5 percent to 3.0 percent range. When combined with various interest subsidies on credit funds, firms were presented with clear, near risk-free arbitrage opportunities.
Central and state-owned enterprises borrowed at low interest rates and then used the funds to purchase bank wealth management products or place them into time deposits. On balance sheets, this behavior cosmetically improved financial data by simultaneously increasing both “loans” and “deposits.” Beyond cosmetics, however, it contributed nothing to real economy capital formation. This is the root cause of why manufacturing and private investment remains sluggish despite surging corporate loan data.
The growth gap between M2 and M1 — the so-called “scissors gap” — continued to widen throughout 2025. By the end of December 2025, M2 was up 8.5 percent year on year, while M1 rose only 3.8 percent, producing a gap of 4.7 percentage points. An expanding scissors gap is a classic signal of a “liquidity trap.” It indicates that no matter how much liquidity the central bank injects, firms hoard the money rather than put it into circulation. This undercuts optimistic market interpretations of an “economic recovery” and instead reveals that corporate operating activity is in a state of contraction or cautious wait-and-see behavior.
3. In full-year 2025, new RMB lending totaled 16.27 trillion yuan, representing a 10.1 percent decline. The bulk of these credit resources was used to roll over existing liabilities rather than to build new productive capacity.
i) Of the 16.27 trillion yuan in new loans, corporate and institutional borrowers accounted for 15.47 trillion yuan, or as much as 95 percent of the total. This historic extreme has created a “strong corporate, weak household” landscape. However, the internal composition of corporate lending reveals significant risks:
- Reliance on short-term financing: Short-term loans and bill financing accounted for over 40 percent of total corporate credit, a direct reflection of tightened corporate cash flow. Also, the real debt burden of corporations has continued to rise in a deflationary environment where the PPI has remained negative for 39 consecutive months. Falling profit margins mean companies cannot service debt through operational cash flow and must rely on new loans to pay off old ones.
- Bill financing anomaly: Bill financing increased by 1.66 trillion yuan, hinting at weak demand for financing in the real economy. To meet their credit quotas, banks have resorted to buying bills at extremely low rates. For enterprises, this has evolved into a pure financial tool rather than a reflection of actual trade activities.
- Debt swaps versus real growth: While medium-to-long-term corporate loans increased by 8.82 trillion yuan, a substantial portion was linked to local government debt swaps. On Jan. 15, 2026, a PBoC spokesperson noted that after adjusting for debt resolution effects, the “real” loan growth rate was approximately 7 percent. This indicates that many medium-to-long-term loans were used to swap out maturing hidden debts (such as LGFV bonds) rather than creating new physical workloads like factories or infrastructure. Thus, this credit serves as a “stabilizer” to prevent default rather than an engine for growth.
ii) In stark contrast to the corporate sector, household credit data reflects a chilling balance sheet recession. Total household loans in 2025 increased by only 441.7 billion yuan, a ten-year low. Household credit regressed to 2007 levels, representing only 5.6 percent of the volume seen during the 2021 peak of China’s real estate boom (7.92 trillion yuan). Short-term household loans fell by 835.1 billion yuan, signaling that residents are aggressively paying down credit cards and consumer loans, with spending intent hitting a freezing point.
While medium-and-long-term household lending grew by 1.28 trillion yuan, this was less than 60 percent of the growth in 2024 and a cliff-like drop from the 5 to 6 trillion yuan annual increments seen in previous years. The net deleveraging behavior of households (repayments exceeding new borrowing) has directly led to a sluggish consumer market. This, in turn, exacerbates sales difficulties for enterprises, creating a vicious cycle of “de-leveraging and deflation.”
4. In sum, China’s 2025 financial data indicate that the nation’s economy remains plagued by aggregate monetary looseness, structural contraction, and a liquidity trap. Beijing faces significant financial risks and challenges in 2026 as it continues to rely on government debt issuance and the central bank’s quasi-fiscal deficit monetization. Mounting financial risks could potentially and suddenly transform into political risks for the regime.
