Beijing/Shanghai — China’s external sector showed signs of strain in March, with the country’s trade surplus narrowing to a 13-month low of $51.1 billion, as export growth weakened significantly while imports accelerated on the back of rising technology costs.
The latest data points to a shifting dynamic in the world’s second-largest economy, where robust external demand is beginning to moderate and import intensity—particularly in high-tech sectors—is rising faster than anticipated.
Export Growth Loses Momentum
China’s exports grew by just 2.5% year-on-year in March, a sharp deceleration from the 21.8% growth recorded in the first two months of 2026, and below market expectations of high single-digit expansion. Despite the slowdown, first-quarter exports remain strong overall, rising 14.7% year-on-year, supported by a solid start to the year.
A key drag continues to be exports to the United States, which declined 16.4% year-on-year in the first quarter, standing out against otherwise resilient trade performance with other major partners. Exports to ASEAN rose 20.5%, the European Union 21.1%, Japan 6.9%, and South Korea 24.5%, reflecting sustained demand across Asia and Europe.
Analysts expect the negative base effects linked to prior US tariff measures to ease in the coming months, potentially stabilising trade flows, although policy uncertainty remains a risk.
High-Tech Exports Outperform
China’s export composition continues to shift toward higher-value sectors. Semiconductor exports surged 77.5% year-on-year in the first quarter, while automotive exports rose 58.5% and ship exports 48.7%. Overall, high-tech exports expanded 28.6%, significantly outpacing headline export growth.
By contrast, traditional, price-sensitive categories such as toys and footwear contracted, declining 14.8% and 8.0% respectively. Rare earth exports also fell 9.0% year-to-date, despite a partial easing of export restrictions.
Imports Surge on Rising Tech Prices
More striking than the export slowdown was the sharp acceleration in imports, which rose 27.8% year-on-year in March, up from 19.8% in the first two months of the year.
The surge appears to be driven largely by price effects in technology-related imports. Semiconductor imports, for instance, increased 11.0% year-to-date by volume, but 45.0% by value, indicating significant price inflation. Similar trends are evident across broader high-tech imports and automatic data processing equipment, which rose 29.2% and 49.5% respectively.
Regional trade data reinforces this trend, with neighbouring economies benefiting from strong tech demand, including Taiwan’s notable export growth.
Energy Prices Yet to Fully Feed Through
While global energy markets have tightened, the impact of higher oil and gas prices has yet to fully materialise in China’s trade data. Crude oil import volumes rose 8.9% year-to-date, but values declined 4.7%, suggesting earlier price softness or contract lag effects. Natural gas imports also fell in both volume and value terms.
However, analysts expect rising global energy prices to push import values higher in the coming months, adding further upward pressure on China’s import bill.
Implications for Growth Outlook
The combination of slowing exports and surging imports has significantly reduced China’s trade surplus, with the first-quarter figure reaching $264.3 billion, down 2.5% year-on-year in dollar terms and 4.8% in renminbi terms.
This narrowing surplus could weigh on China’s economic growth. External demand contributed approximately 1.6 percentage points to overall GDP growth last year, and a reduced surplus suggests a smaller contribution in the first quarter of 2026.
With markets currently forecasting GDP growth of around 4.8% year-on-year, downside risks are emerging. A softer trade balance, coupled with rising import-driven inflation, could result in a weaker GDP deflator and a broader slowdown than anticipated.
Policy Outlook
The latest trade figures are likely to intensify debate over the need for further policy support. Should domestic demand fail to offset external headwinds, policymakers may face renewed pressure to deploy additional stimulus measures to sustain growth momentum.
For now, China’s trade data underscores a critical transition: from export-led strength toward a more complex balance shaped by technology dependence, shifting global demand, and rising import costs.
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