Fake GDP, Fake Population! China’s $1.2T Trade Surplus Exposed as Biggest Fraud Ever

Recently, a set of economic figures drew widespread attention across the industry. In 2025, China's merchandise trade surplus reached 1.189 trillion U.S. dollars. This is the highest level ever recorded globally. Exports grew by 5.5% during the year. Also, the trade surplus exceeded 1 trillion U.S. dollars within the first 11 months. This is a figure rarely seen in modern trade history. The results attracted global attention. They were hailed by Chinese state media, online commentators, and pro-Beijing political groups in some countries. These groups saw the figures as proof of the strength of Chinese manufacturing. However, in a surprising turn, Zhang Yansheng issued a warning. He is the former head of research at the Institute of Foreign Economy of the National Development and Reform Commission. He now serves as the chief researcher at the China Center for International Economic Exchanges. He said that such a large trade surplus may not be a positive sign. It could instead create new and unprecedented risks. As a leading economist with close ties to official policy circles, Zhang did not explain in detail what risks might be hidden behind these seemingly impressive figures. He only noted that the continued shift of global supply chains away from China could have a deep impact on the country's manufacturing sector. Financial analysts, however, have pointed to several possible explanations. First, a review of economic data suggests that the wider trade surplus in 2025 was not driven entirely by stronger exports. Lower global prices for major commodities, such as crude oil and iron ore, reduced the value of imports. This change, in turn, increased the trade surplus. Second, many Chinese companies have moved part of their production capacity and assembly operations to countries such as Vietnam, India, and Mexico. They did this to reduce exposure to sanctions and trade restrictions. As a result, imports of intermediate goods and components used in processing trade have fallen sharply. This has become one of the main reasons for lower import values. In addition, multinational companies have reduced their presence in the Chinese market. They have shifted some production to Southeast Asia and Mexico. This has further lowered demand for imported components, advanced raw materials, and finished products. One development that drew particular attention came shortly after the trade surplus reached a record high. The Chinese financial media outlet China Business Network published an investigative report. It was titled, Purchase Export Data – Draining Local Finance with No Real Economic Benefit. The report exposed irregular practices involving so-called purchase exports in some regions. According to the report, some local governments sought stronger export numbers, political achievements, and subsidy funding. They allowed or even encouraged companies to inflate export performance. These methods included re-export schemes, fraudulent invoicing, circular export transactions, and repeated customs declarations within bonded zones. In some cases, shell companies reportedly purchased legitimate customs records from exporters. They then registered those export volumes locally to qualify for financial incentives. The investigation found that export incentive programs in some inland provinces involved more than 100 million yuan in government funding. Spending in certain areas exceeded 200 million yuan, which equals about 29.6 million US dollars. Chinese media noted that these practices consume local fiscal resources. At the same time, they provide little real support to the broader economy. Although such cases do not necessarily mean national customs statistics are widely inaccurate, they have raised further questions about the quality and reliability of some reported trade growth. Facing growing external pressure, Chinese authorities have already begun adjusting policy. Starting in late 2024, export tax rebates were removed for 59 categories of products. These included aluminum and copper materials. In 2026, export tax rebates for photovoltaic products were also eliminated. Rebates for battery products are still being phased out. Industry data show that photovoltaic module prices fell from 24 cents per watt in 2023 to 9 cents per watt. This was a decline of more than 60 percent, reflected intense competition across the sector. Industry observers familiar with China's political system argue that the phenomenon of purchase exports may appear to be isolated misconduct by local authorities. But it's actually rooted in structural incentives within the system. They believe such practices are unlikely to disappear through self-regulation or administrative pressure alone. The key issue is that export figures are no longer seen as economic indicators. They have become a major measure of officials' performance. They are also an important factor in determining promotions. Under an evaluation system that places great weight on numerical targets, strong export figures can bring recognition from the central government. They can secure financial rewards and help advance an official's career. When real economic growth weakens, manipulating the numbers can become the easiest way to produce favorable results. A deeper problem lies in the zero-sum nature of bureaucratic competition. In an environment shaped by intense political rivalry, economic statistics become a form of capital. If one province reports its data honestly while neighboring regions inflate their figures, those who follow the rules may fall behind in ranking, evaluations, and promotion opportunities. This creates a classic prisoner's dilemma. Even if one official chooses not to manipulate data, others may continue to do so. This leaves the honest participant at a disadvantage. As a result, few officials are willing to risk their careers of being the first to stop. Even when authorities repeatedly warn against data manipulation, the incentives remain as long as the evaluation system and promotional criteria stay the same. Local governments often understand the risks, but many feel they have little choice. Analysts argue that these structural incentives are the core of the problem. Analysts also note that China's property sector remains weak. Consumer spending is sluggish, and business investment has slowed. As a result, a large amount of industrial capacity can no longer be absorbed at home. It must increasingly rely on overseas markets. At the same time, China's large trade surplus has drawn growing international scrutiny. Government subsidies and aggressive pricing strategies have supported it in part. Official figures show that China accounts for roughly 18% of global GDP. Its manufacturing value added exceeds 30% of the global total. Although some observers question the accuracy of these statistics, the scale of China's manufacturing capacity remains significant. Continued reliance on large trade surpluses is increasingly viewed as putting pressure not only on industries in other countries, but also on the global marketplace as a whole. This has contributed to a growing number of tariffs, anti-subsidy measures, and trade investigations launched by the United States and Europe over concerns about industrial overcapacity. In 2025, China's exports to the United States reportedly fell 18.9% from the year earlier. Exports to Africa rose 26.3%. The Association of Southeast Asian Nations remained China's largest trading partner. At the same time, China is exporting far more than consumer goods. It's also exporting machinery, automated production lines, and even complete In other words, a significant share of China's exports now consists of the manufacturing expertise and industrial advantages built over several decades. Some analysts believe this strategy could create long-term challenges for China itself. Industry observers argue that when China helps Vietnam build an electronic supply chain, assists Indonesia in developing its steel industry, or supports battery manufacturing projects in India, those countries may eventually establish complete industrial ecosystems of their own. Over time, they could become direct competitors to Chinese manufacturing in global markets. Ultimately, many economists argue that domestic demand will be the key factor in determining China's future. Shanghai resident Mr. Zhang, who has lived in the city for nearly 70 years, recently told reporters, The level of decline is something I've never seen before. It's extremely bleak. We have a landmark commercial complex called AGNC Plaza. It's a huge shopping center in what used to be a very busy area. Now, nearly all the stores inside have closed, and the crowds have disappeared. At night, the building still looks brightly lit from the outside, but inside the shops are shut down. Many internet users shared similar concerns online, saying they were surprised by the speed of Shanghai's economic slowdown. I was thinking of grabbing lunch on Changping Road at noon, but all the restaurants along one side of the street were closed. Even Libebo, which office workers used to love, has shut down. Now even the city center feels this quiet and down. Not only has commercial activity weakened, but even major transport hubs that once saw heavy foot traffic have clearly cooled. Shanghai Railway Station is one of the city's most important railway hubs and has long been among the busiest transport centers in China. Today, however, passenger activity has noticeably declined. Mr. Zong said that in the past, the station had an underground passage lined with shops on both sides, and business was strong. Now, he noted, only 1 in 10 storefronts remains open. 9 out of 10 are closed. Nobody goes there anymore. Compared with the old days, it's like night and day. You had never seen Shanghai this depressed. Alongside the economic downturn and weak consumer demand, population decline is also becoming more visible. A Shanghai resident said online that crowds at Nanjing Road 10 years ago were at least 10 times larger than they are today. Mr. Wu, who has lived in Shanghai his entire life, shares similar views and questions official statements about the situation. Have you noticed it? Shanghai's population decline feels really obvious. I just went downstairs for a meal and the entire street of restaurants was empty. The lady at the wet market said half as many people are buying groceries now. Even the delivery riders are confused. Before, they could do 50 orders a day. Now 20 is already considered lucky. From Shanghai to Chengdu, from the south to the north, everyone is saying the same thing. People have disappeared. But recently, official reports in Shanghai said the city's population increased by 100,000 this year compared to last year. Yet on weekends, malls and bubble tea shops have no lines, cinemas have cut screenings in half, and breakfast shops and barber shops in residential areas are all up for transfer. Even the subway during rush hour isn't crowded anymore. You can sit wherever you want. Some say migrant workers have gone back to their hometowns, but my friends in similar counties say their local malls are empty too, and people are just walking dogs to pass time. A restaurant owner said lunch used to turn tables three times, but now one table can sit all afternoon. A delivery driver complained that a full day of work now doesn't match what he used to earn half a day. If consumer spending is really rising like they say, then where on earth did all these hundreds of millions of people go? Mr. Zhang also believes the drop in foot traffic comes from several factors. First, he points to rising levels of delayed marriage, non-marriage, and low birth rates among young people in Shanghai. He notes that many of his relatives and acquaintances remain single. In the past, many kindergartens and primary schools were built. Now they are closing or merging because the population is steadily declining. Second, he cites economic slowdowns and population outflows. Third, he says many people died during the COVID-19 period. The government says the population is 1.4 billion, but Zhang estimates that there are not even 900 million. He believes those numbers are fabricated. Beyond the economic slowdown and weakened consumption, international luxury brands are also showing less interest in the Chinese market. The luxury sector was once seen as a symbol of China's rising consumption. It's now facing a clear slowdown. Recently, senior executives at Swiss luxury group Richemont acknowledged something. Despite strong overall results, their previous expectations for the Chinese market have been too optimistic. Richemont owns well-known brands such as Cartier, Van Cleef Arpels, and Bucciarati. Its jewelry division remains the group's largest source of revenue. Annual sales rose 8% to 16.54 billion euros. However, in China, Cartier has begun to reduce its retail presence. In the first quarter of 2026, Cartier closed five stores in mainland China in a single move. This marked a notable contraction. Richemont CEO Nicholas Bose said in previous years, both the company and its competitors expanded rapidly in China. They did this due to strong market growth. However, as luxury spending in China slows, companies are now reassessing their outlook. They are adjusting store networks and business strategies. This pullback is not limited to one company. Caring is a parent company of Gucci. It's also said it previously relied too heavily on Chinese market growth. It's now planning to reduce its store footprint in China. At the same time, it's adjusting its brand strategy. The trend extends beyond luxury goods. Foreign consumer brands are also pulling back. Haagen-Dazs has sold its Chinese ice cream retail and gift business to an investment consortium. As of May 2026, its store count in China has fallen from 263 locations a year earlier to 171. Meanwhile, Food Republic, once operating hundreds of outlets in China, has closed its last store in Beijing and will now only keep four locations in Shanghai. Industry observers note that from luxury brands to restaurant chains, more international companies are reshaping their China strategies. Because luxury spending is widely seen as a key indicator of economic strength, the admission by global brands that they had overestimated China's market sends a clear signal. Even as China's trade surplus reaches record highs, consumer demand appears to be weakening. Although the withdrawal of luxury and foreign consumer brands is not the main reason for falling import volumes, it's considered one factor contributing to weaker imports and the record high trade surplus. Entering 2026, China's import volumes have continued to shrink, but this time it's not because of falling commodity prices. According to Oil Price Intelligence, geopolitical tensions linked to conflict in the Persian Gulf have disrupted energy markets. They have contributed to a sharp drop in China's crude oil imports. Data from maritime analytics firm Kepler shows that in May, China's average daily crude oil imports fell to 6.36 million barrels. This is down from 8.1 million barrels the previous month. It was also well below 11.39 million barrels in February, before the conflict began. However, the decline in crude oil imports does not appear to match a significant drop in manufacturing-related demand. According to Kepler data, China's refinery crude throughput in May was 13.5 million barrels per day. This was down 154,000 barrels per day from April estimates. It was also 900,000 barrels per day lower than in May 2025. Still, analysts say this level remains within a normal range of fluctuation. China does not publish official data on oil inventories. However, based on import volumes and refinery utilization rates, experts estimate that China's crude stock built last year averaged between 900,000 and 1 million barrels per day. This suggests total crude reserves have now reached close to 1 billion barrels. Analysts say that for more than a year before the U.S.-Israel coalition strike on Iran, Chinese authorities took advantage of stable oil prices. They built up large volumes of As a result, imports exceeded both domestic consumption and export needs. Chinese refineries are now believed to be using these inventories to cover supply gaps. They do this to avoid higher costs that could disrupt downstream manufacturing. China's expansion of strategic oil reserves has been a long-term policy. A Reuters report last October said China was building up to 11 new oil storage facilities. The target was to add 169 million barrels of capacity by the end of 2026. At that time, data from Kepler and Vortexa suggested this new capacity was equal to about two weeks of crude imports. It would raise total storage capacity by around 180 to 190 million barrels between 2020 and 2024. However, the outbreak of conflict involving Iran is reported to have disrupted China's oil inventory plans. Global supply constraints have emerged. Some analysts warn that the full impact may only become clear in July. While China's reserves have helped stabilize domestic oil prices, analysts say this support is temporary. Inventories cannot be maintained indefinitely. Observers note that drawing on strategic reserves is a reluctant but necessary step for Beijing. This comes given China's reliance on manufacturing and the importance of the oil supply chain. They add that these reserves would not be used lightly unless under significant economic pressure or external uncertainty. From this perspective, China's record trade surplus in 2025 appears to reflect a mix of weaker domestic demand, falling imports, overseas relocation of capital and production, and broader structural imbalances. Some analysts describe this as illusory prosperity. It is driven more by distortions than by strong underlying growth. The relocation of manufacturing capacity and the hollowing out of domestic industry has led to weaker consumption and reduced global competitiveness. This pattern has also been seen in the United States in the past decades. It's a trend that President Donald Trump has sought to reverse. In this view, a similar pattern may now be emerging in China. Looking ahead to 2026, China's trade surplus may continue to look strong in headline figures due to ongoing import declines. However, the underlying economic picture is seen as increasingly fragile. By contrast, the United States continues to lead in high-tech industries and defense manufacturing. It's supported by a strong legal system and institutional checks and balances. Critics argue that this makes China's trade performance appear increasingly misleading. Some commenters go further. They suggest that China's economic slowdown could arrive sooner than many expect.