Chinese government faces increasing international pressure to boost domestic consumption
issued Tuesday, June 9, 2026 · 11:31 am — Updated Tuesday, June 9, 2026, 3:05 p.m.
[BEIJING] China’s export growth accelerated in May, fueled by strong demand for chips, cars and other high-tech products that are programming a global AI boom, providing policymakers with some reassurance as energy price shocks from the Iran conflict weigh on broader demand.
A surge in global AI investment has helped the world’s top manufacturers offset the hit to exports that many expected from the turmoil in the Middle East. But there are signs that reserves linked to rising energy costs are thinning as prices rise and foreign buyers begin to draw down stocks in search of a truce.
Customs statistics on Tuesday (June 9) showed exports rose 19.4% year-on-year in US dollar terms, beating April’s 14.1% increase and economists’ expectations for a 15% increase.
Imports had another strong month, increasing by 27.4% compared to the previous month’s 25.3% increase. Economists had expected growth of 25%.
“Rising chip prices continue to support exports, with memory prices rising 20% month-on-month and integrated circuit export growth reaching 111% in the same month,” said Xin Zhaopeng, senior China strategist at ANZ.
According to the data, China’s exports of automatic data processing equipment increased by 66.1% year-on-year in terms of value, high-tech products increased by 50.9%, and automobile shipments increased by 39%.
“Looking to the future, the AI story is not over yet. Chips are rewriting China’s trade landscape,” Singh added.
The AI boom is driving strong demand for semiconductors that power data centers and advanced electronics, leveraging China’s manufacturing strengths.
But beyond AI, there are signs of strain in other sectors, suggesting momentum may be starting to wane. For example, furniture exports in May increased by only 1.9% year-on-year, while toy shipments decreased by 7% and footwear exports decreased by 10.4%.
Separate factory activity data also showed new export orders fell sharply last month from April, when warehouse managers reported a two-year high, amid a scramble for supplies by foreign factories.
Strong exports boosted China’s economy by US$20 trillion (S$25.7 trillion) more than expected in the first quarter, but weakness in some export engines has heightened concerns that weak domestic demand leaves it exposed to a deterioration in global conditions and increases the likelihood of further policy support.
China’s overcapacity causes trade tensions
Critics have warned that Beijing’s heavy reliance on imports and re-exports is distorting trade and crowding out high-value manufacturing from other emerging economies, increasing international pressure to boost domestic consumption.
“We need to pay close attention to escalation risks between China and major trading partners such as Europe,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
Last week, the Organization for Economic Co-operation and Development compounded those concerns when it said in a report that Chinese companies’ “nearly 60% of their market share growth can be explained by the subsidies they receive.”
A new paper from the US Federal Reserve reveals that China’s trade surplus, measured against global GDP, is more than 1%, far above the peaks reached by Japan and Germany in the late 20th century, and shows little sign of shrinking.
China’s trade surplus, which topped $1 trillion last year, was $105.43 billion in May, up from $84.8 billion the previous month and an expected $92.1 billion.
The latest trade figures suggest that overcapacity in China’s industry probably accounts for at least some of the shipments.
In May, exports to Europe increased by 7.6% compared to the same month last year, exports to the United States increased by 35.4%, and exports to Southeast Asia increased by 24.3%.
Purchases from South Korea soared by 83.6%. China is South Korea’s largest chip market.
rare earth flash point
China’s economic influence has spilled over into the oil market, with the world’s top energy buyer surprising traders by cutting back on purchases. Crude oil imports fell 29% in May to the lowest level in eight years, helping to keep global prices in check and partially cushioning the energy shock caused by US President Donald Trump’s war with Iran.
Close talks between President Trump and Chinese leader Xi Jinping last month helped ease tensions between the two superpowers, but failed to produce any meaningful progress, including on tariff disputes and cooperation on ending the conflict with Iran.
Still, China’s rare earths exports rose to a four-month high, with the world’s top producer shipping 5,490 tonnes of a group of 17 elements essential for electric cars, wind turbines and defense technology, another flashpoint in Beijing’s trade tensions with the West.
Sheena Yue, senior economist at Oxford Economics, said China’s relative advantages in size, supply chain depth and industrial capacity put it in a good position to absorb trade tensions with the West, such as proposed U.S. tariff hikes over forced labor concerns.
“Despite war-related headwinds to global demand, we still expect exports to be China’s main growth driver in 2026, with continued support from high-tech and clean-tech products.” Reuters
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