By Huan Xiang, People’s Daily
Recently, some forces have once again revived the “China’s overcapacity” narrative, attempting to blame China for global economic imbalances and find a convenient scapegoat for their own economic difficulties. Yet global economic imbalances are, in essence, a systemic issue shaped by a combination of geopolitical shifts, the evolving international division of labor, and technological change. The blame-shifting narrative built around “overcapacity” does not hold up under scrutiny of hard data and sound logic.
I. Surplus countries change; deficit countries remain largely the same
Over the past 40 years, the global trade landscape has undergone repeated transformations. Yet one pattern remains clear: economies running persistent trade deficits have remained highly concentrated and largely unchanged, while those running persistent trade surpluses have shifted over time with changes in the global division of labor — from Japan, Germany, and Switzerland in earlier years, to China later, and more recently to several emerging economies in Southeast Asia. If “overcapacity” were the root cause of global imbalances, it would be impossible to explain why the identity of surplus countries has changed so frequently.
A look at external debt tells a similar story. When both external assets and liabilities are considered together, the concentration of global imbalances becomes even more evident. In 2025, the United States’ net international investment position (NIIP) — the net value of its total foreign assets minus its external liabilities — stood at negative $27.5 trillion, equivalent to about -90 percent of GDP. In 2007, that figure was only -9%.
Cross-country comparisons are even more revealing. The largest net external liabilities of other major debtor economies were around $1 trillion, while Germany, China, Japan, and other major surplus countries each held around $4 trillion in net external assets, all far below the U.S. net liability in absolute terms. To ignore the sharp increase in the world’s largest deficit country’s debt while singling out surplus countries for blame is nothing short of selective blindness.
II. Geopolitical and technological shifts are amplifying global imbalances
As global economic imbalances continue to widen, geopolitical and technological factors cannot be overlooked. In recent years, geopolitical conflicts around the world have intensified. Benefiting from its geographical distance from conflict zones and its highly developed financial markets, the U.S. has further strengthened the safe-haven appeal of the U.S. dollar and dollar-denominated assets. This has attracted continued inflows of global capital and directly driven up its net external liabilities. Meanwhile, the Japanese yen and euro have depreciated significantly, weakening their traditional safe-haven roles and severely undermining the conventional mechanism of using exchange rates to correct trade imbalances. This one-way flow of capital driven by geopolitical factors is an important force behind the current widening of global economic imbalances.
The new round of scientific and technological revolution, particularly the rise of artificial intelligence (AI), is also reshaping the dynamics of global imbalances. Leveraging its first-mover advantage in AI, the U.S. is attracting large amounts of related capital from around the world. According to basic balance-of-payments principles, sustained capital inflows into a country necessarily correspond to a widening of its current account deficit. Data show that U.S. equities now account for nearly 50 percent of global stock market capitalization, while foreign investors hold close to 30 percent of U.S. equities by market value. Equity assets have replaced bonds as the primary form of U.S. external liabilities.
This shift carries two major implications. First, the channels through which imbalance risks are transmitted are evolving: whereas such risks were once channeled primarily through interest rates and debt, they are now increasingly conveyed through fluctuations in equity valuations and asset prices. Second, the global trade structure is being reshaped. U.S. demand for high-tech products keeps widening. This transformation in trade structure is driven by the internal development of the U.S. economy itself and, therefore, cannot reasonably be attributed to the production capacity of other countries.
Ⅲ. Expanding domestic demand in China: a key driver of global rebalancing
Trade surpluses arise naturally from the global division of labor and the supply-demand structures of individual economies. China’s sustained export growth fundamentally reflects the deep integration of its high-quality production capacity into global supply chains, thereby providing strong support for global economic stability and industrial transformation worldwide.
More importantly, China is injecting sustained momentum into global economic rebalancing through a systemic transformation of its development model. In recent years, China has firmly pursued the strategic priority of expanding domestic demand by boosting consumption, expanding effective investment, and ensuring the smooth circulation of the national economy. This has steadily shifted the driver of economic growth from investment and exports toward greater reliance on domestic demand.
In the first half of 2026, China’s import growth outpaced its export growth by 8.7 percentage points. China’s increasingly dynamic and expanding domestic market is not only a major engine of its own economic growth but also provides broader market opportunities and more stable demand for countries around the world.
In the first half of 2026, China’s import growth outpaced its export growth by 8.7 percentage points. China’s increasingly dynamic and expanding domestic market is not only a major engine of its own economic growth but also provides broader market opportunities and more stable demand for countries around the world.China has consistently contributed to global stability through high-quality development and has injected fresh momentum into global growth by continuing to open up its vast domestic market. This is precisely its most solid and powerful contribution to global economic rebalancing.
