Commentary: Where Did China’s Trillion-Dollar Surplus Go?

[para. 1] As 2025 concludes, China’s trade sector has reached a historic milestone, recording a cumulative goods trade surplus of over $1 trillion in the first eleven months of the year. This influx of foreign currency, dominated by U.S. dollars, has propelled the renminbi to strengthen significantly, recently moving below the key 7.0 threshold against the dollar. The new U.S. administration, with leaders such as Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer, is focusing on trade imbalances, but a deeper issue is the destination and utilization of this vast inflow of funds.

[para. 2] The movement of money does not simply mirror the movement of goods; trade surpluses do not automatically equate to a corresponding repatriation of export earnings. Examination of China’s balance of payments reveals that Chinese companies are increasingly managing their foreign earnings in ways that are shifting China’s role from being primarily the world’s manufacturing hub to becoming an emerging global financier.

[para. 3] Between 2020 and November 2025, China accumulated an enormous goods trade surplus of about $4.9 trillion. However, only $2.9 trillion of this surplus was actually repatriated through China’s banking system, leaving a notable $2 trillion that remained overseas. This discrepancy is not accidental; it reflects a deliberate policy of capital deployment abroad.

[para. 4] This $2 trillion retained offshore marks the basis of China’s growing global financial influence. Rather than bringing this money home, Chinese entities are increasingly investing it directly overseas, creating a dynamic where China’s substantial current account surplus is nearly balanced by a similar deficit in its non-reserve financial account. Essentially, export income is being recycled into the acquisition of foreign assets.

[para. 5] For the funds that do return to China — about $2.9 trillion — export firms must choose whether to convert their receipts to renminbi or keep them in foreign currency accounts within Chinese banks. Since 2020, approximately $1.78 trillion has been converted to local currency, while the remainder, around $1.1 trillion, is kept in foreign denominations.

[para. 6] Significantly, the rate at which Chinese companies convert their dollar earnings into renminbi has declined over time. From 2020 to late 2025, the average conversion (forex settlement) rate was 53%, and it further dropped to 49% in the first eleven months of 2025. This decline is due to factors like higher overseas investment incentives and differing interest rates, and it has resulted in a substantial pool of foreign currency held by corporations, influencing currency markets and contributing to renminbi volatility.

[para. 7] Interestingly, while forex conversion is often pro-cyclical, corporate foreign currency deposits have helped stabilize the market. Corporations typically add to these deposits when the renminbi is strong and draw from them when it is weak, following a “buy low, sell high” approach. From 2020 to late 2025, onshore foreign currency deposits grew by over $300 billion, mostly held by non-financial corporations.

[para. 8] Overall, of the roughly $5 trillion in export earnings since 2020, about $2 trillion was kept abroad and invested. Of the $2.9 trillion that returned to China, $1.78 trillion was converted to renminbi, and the rest held as foreign currency for various uses.

[para. 9][para. 10] The most noteworthy development is China’s emergence, in mid-2025, as a net global creditor in terms of non-reserve assets, meaning its overseas assets now exceed its liabilities for the first time. The primary source driving this transition is growth in “other investments” — mainly trade credits and foreign loans — with a net positive position above $1 trillion. Chinese exporters are offering more credit to overseas buyers, and Chinese banks are expanding foreign lending.

[para. 11] While direct and securities investment abroad remain net negative—foreigners still own more assets in China than the reverse—the trends show rapid growth in outbound activity: $130 billion in direct investment and over $500 billion in foreign securities since 2020.

[para. 12] Thus, China is no longer merely building up reserves from export earnings but is enabling its corporates to accumulate a diverse array of global assets, including infrastructure, equity stakes, bonds, and loans. As the Trump administration reviews China policy, it is facing not just a trading rival, but a sophisticated global creditor with a financial strategy that is reshaping international capital flows.