China trade surplus soars past $1 trillion as AI boom powers exports

China's trade surplus reached an impressive $1.04 trillion within the first ten months of the year, surpassing the $1 trillion mark for the second straight year. This surge is largely attributed to a global race to develop AI infrastructure, which has fueled demand for Chinese high-tech products and helped offset weak domestic consumption.

The figures highlight the country's growing reliance on overseas demand to support an economy grappling with subdued domestic demand and a protracted property slump. However, while the global AI investment boom is expected to maintain strong demand for Chinese technology products through 2027, it may deepen domestic imbalances and lead to trade frictions with partners like the European Union.

China's exports increased by 35.2% in October compared to the same period last year, a rise that was slightly slower than the 36.3% surge in September but surpassed economists' forecast of a 33.5% increase. This helped lift China's trade surplus to $1.04 trillion in the first ten months, setting a new milestone a month earlier than the previous year.

The growing surplus could lead to heightened tensions with the European Union, which has called for stricter trade curbs with China after agreeing to limit Chinese exports of hybrid vehicles to the bloc. Despite the European Union's measures not yet taking effect, factories are anticipated to expedite shipments, boosting exports in the near term.

Earlier this month, China announced an extension of its trade truce with Washington, which was set to expire on November 10, but stated that increasing purchases of US farm goods would depend on the implementation of a reciprocal tariff-reduction arrangement. Macquarie analysts warn that the outlook for exports depends on the longevity of the AI boom.

They expect China's exports to accelerate further in the fourth quarter before slowing down from the first quarter of 2027.