Recently, some forces have revived the "China's overcapacity" narrative, trying 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 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.
(File photo: CGTN)
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 you consider both external assets and liabilities together, the concentration of global imbalances becomes even more evident. In 2025, the United States' net international investment position (NIIP) — the total value of its 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 percent.
Cross-country comparisons are even more revealing. The largest net external liabilities of other major debtor economies were around $1 trillion.
In contrast, Germany, China, Japan, and other major surplus countries each held around $4 trillion in net external assets, all far below the US 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.
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 worldwide have intensified. Benefiting from its geographical distance from conflict zones and its highly developed financial markets, the US has further strengthened the safe-haven appeal of the US 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 a key driver of 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 US 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 US equities now account for nearly 50 percent of global stock market capitalization, while foreign investors hold close to 30 percent of US equities by market value. Equity assets have replaced bonds as the primary form of US 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 price linkages.
Second, the global trade structure is being reshaped. US import demand for high-tech products like advanced chips, servers, and data center equipment continues to expand, meaning that even if its traditional goods trade deficit narrows, its deficit in advanced technology products continues to widen. The US economy's internal development drives this shift in trade structure and therefore cannot reasonably be attributed to other countries' production capacity.
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.