In trade, investment and, with time, via financial flows, China has a considerable long-term advantage that is set to grow their real economy and national wealth.
This week, President Xi and President Trump are due to meet and discuss China/US relations, developments in the global economy and, barring a resolution before, likely the conflict in the Middle East. This meeting will not materially change the status quo, being one of a number of in-person meetings planned for this year. But it will guide on the opportunities and risks ahead. Available data points to a stark difference in perspective and each nation’s outlook.
As the US continues to focus on controlling trade across its borders in pursuit of greater domestic investment and production, China has instead enticed investment at home by encouraging foreign trade. To date in 2026, China’s trade surplus has averaged US$88bn per month after holding around US$99bn in 2025, both outcomes roughly three times the 2018-19 average of US$32bn.
The US trade position has, in contrast, deteriorated from an average deficit of US$47bn per month in 2018-19 to US$73bn in 2025-26. This US data admittedly pre-dates the surge in energy exports seen through April and May, but China has also temporarily pulled back on their supply of energy goods to other nations, reducing export revenue.
With future export opportunities remaining the focus, Chinese fixed asset investment continues to grow after rapidly scaling through 2020-2025. Of particular note, transport and storage-related infrastructure spending surged in early-2026, and utilities investment has continued to compound around 9%ytd.
Within the manufacturing sector, stronger demand for green technology goods and refined energy products is likely to elicit a sustained upturn in capital expenditure through 2026, with the key investment sub-categories of electrical machinery, automobiles (EVs) and chemicals all showing evidence of stabilisation in Q1, and global demand receiving strong support from elevated energy prices and open-ended uncertainty over Middle East supply.
In contrast, in the US, investment remains highly concentrated in AI-related infrastructure and conversely is weak in areas related to trade and the domestic real economy. Lingering uncertainty related to tariffs and elevated long-term yields are also at play, in addition to businesses’ focus on technology – US for-profit entities need greater surety over expected returns than China’s state-owned and state-linked entities.
An additional element to consider is the benefit China may receive from the US’ souring relationship with other nations, particularly Europe. This month, President Trump has continued to spar with European leaders, threatening to pull US troops from Germany and other major nations in the region. He then threatened a 10 percentage point increase in the US tariff rate for European cars and trucks, purportedly because the EU had failed to live up to their side of the agreed trade deal.
The EU labelled the US as an “unreliable” trading partner and vowed to respond. Ahead of this development, Chinese authorities were acting to strengthen ties with European leaders, publicly via a number of high-profile visits from European leaders, and behind the scenes by encouraging Chinese firms to invest in Europe and vice versa. There is strong evidence of an integrated, mutually-beneficial trade relationship taking shape between China and Europe.
As we have highlighted frequently, Chinese investment is not concentrated in one jurisdiction, however. It has also spread widely across Asia, Latin America and Africa, targeting not only the production of finished goods, but also the production of supply inputs – from raw materials to high-tech components.
While not their initial intent, over time this project will justify a material increase in the use of the Renminbi in trade, and will also strengthen demand for real and financial investment within China.
These trends will see greater depth and liquidity for China’s onshore financial markets, as well as scope to offer global investments to Chinese investors through the issuance of Renminbi denominated debt and equity instruments. The larger these flows become, the greater the opportunity for Chinese banks and financial entities to facilitate flows, provide capital and manage risk, both on and, more importantly, offshore.
Overall then, in trade, investment and, with time, via financial flows, China has a considerable long-term competitive advantage that is set to benefit their real economy and national wealth.
This analysis initially appeared in Westpac Economics’ May Market Outlook.
