分类： business

As U.S. President Donald Trump prepares to touch down in Beijing on May 14 for a high-stakes bilateral summit with Chinese President Xi Jinping, Chinese officials are ready to lead with one key economic figure to showcase the country’s perceived resilience: an official 5% GDP growth target and performance figure for 2025. But while the 5% target is a stated policy goal, analysts argue that a far more telling indicator of China’s actual economic health lies in an unpublicized metric that reveals deep structural inefficiencies: the Incremental Capital Output Ratio, or ICOR.

ICOR measures how much new investment is required to generate one additional unit of economic output. In a healthy, efficient economy, this ratio remains low, as capital flows to productive, high-return projects. When capital is misallocated — flowing into unneeded infrastructure, unprofitable projects, and overcapacity that cannot be absorbed by domestic demand — the ratio climbs, and in China, it has been rising sharply for decades.

Calculated as gross capital formation as a share of GDP divided by real GDP growth, ICOR is not an official Chinese data point, but it can be derived from public data released by China’s National Bureau of Statistics. During China’s high-growth era between 2000 and 2007, ICOR held steady at around 3.9, meaning 3.9 percentage points of GDP in investment was required to generate 1 percentage point of GDP growth. For comparison, during their own rapid growth periods, South Korea and Taiwan posted far lower ICORs of 3.2 and 2.7 respectively, indicating that even at its economic peak, China’s investment efficiency lagged behind its regional peers.

China’s investment productivity began a steady decline after the 2008 global financial crisis, when Beijing rolled out a massive large-scale stimulus package to offset falling export demand. Between 2008 and 2019, China’s ICOR climbed from roughly 4.5 to 7.2, nearly doubling the pre-crisis baseline. Economists attribute this shift to the exhaustion of China’s easy growth drivers: the most productive coastal manufacturing expansion, cross-regional infrastructure buildout, and rural-to-urban labor migration had largely run their course by the 2010s, leaving less high-return opportunities for new investment.

The upward trajectory of ICOR has only accelerated since 2020. Using China’s official GDP figures, the country’s current annual ICOR stands at approximately 8.5, with a five-year rolling average approaching 9. When adjusted using more conservative, independent growth estimates from the Rhodium Group, a U.S.-based independent research firm that pegs China’s 2025 actual growth between 2.5% and 3%, the implied ICOR jumps to between 14 and 17. Even the most favorable interpretation of official Chinese data confirms a clear trend: the Chinese economy is rapidly losing investment efficiency, fueled by a flood of subsidized credit directed to politically prioritized projects rather than commercially viable opportunities.

Beijing has built a reputation for consistently hitting its pre-set GDP growth targets, so much so that even senior Chinese officials have publicly questioned the legitimacy of the official numbers. Rather than treating GDP as a natural economic output, Chinese authorities treat the target as a non-negotiable policy goal, achieved through directed credit allocation to state-linked entities. State-owned enterprises, local government financing vehicles, and politically connected real estate developers access below-market-rate borrowing that does not reflect underlying project risk, and pour capital into ventures that would fail basic commercial return tests. The end result is a growing pile of excess production and unused capacity that Chinese consumers do not want, created solely to hit arbitrary growth metrics.

Unable to absorb this surplus domestically, Beijing redirects it to global markets, selling goods below production cost and effectively exporting the losses from its domestic capital misallocation to trading partners around the world. This dynamic has major implications for the agenda of the upcoming Trump-Xi summit, challenging the conventional narrative that frames U.S.-China economic relations as a competition between a declining U.S. and a dynamically rising China.

Over the past two decades, the U.S. has maintained a relatively stable ICOR, reflecting an economy where investment and output grow in rough, sustainable proportion. By contrast, China’s economy now requires exponentially more investment to generate every additional yuan of GDP, a structural weakness that undermines claims of inherent Chinese economic strength. China is now structurally dependent on continuous credit expansion and steady export revenues to service its growing debt load and maintain domestic political stability. This means that U.S. trade policy tools such as targeted tariffs can apply direct pressure to the core mechanisms Beijing relies on to manage domestic order, particularly the export revenues that keep its debt system functioning.

That does not mean unilateral U.S. trade action is the most effective strategy, the analysis argues. Instead of walling the U.S. off from global trade alone, Washington should pursue coordinated action with like-minded allies to address the root of the problem: Beijing’s subsidized overcapacity model. Every major global economy is already coping with a flood of underpriced Chinese exported surplus, so a coordinated multilateral framework that targets subsidized overproduction at its source will create far more sustainable leverage than unilateral tariffs, which risk isolating the U.S. from the global partners it needs to enact meaningful change.

None of this data suggests China is on the brink of imminent economic collapse. China’s governing system has already demonstrated a striking ability to manage gradual deterioration: rolling over bad debt, extending repayment timelines, and pushing underlying imbalances into the future rather than addressing them. But managed gradual decline is not the same as economic strength, and Beijing has so far shown no willingness to tackle the core structural imbalances driving falling investment efficiency on its own. While Beijing will continue to tout its 5% official growth figure as proof of economic resilience ahead of the summit, the real metric to watch is the one Chinese officials will not discuss: the rising hidden cost of generating every unit of that growth. This analysis comes from Daniel Swift, a senior research analyst for economics, finance and trade at the Center on Economic and Financial Power at the Foundation for Defense of Democracies, and a retired U.S. diplomat.

HONG KONG – Global financial markets kicked off Thursday with uneven momentum across Asian equities, one day after major U.S. indexes notched fresh all-time records. Traders across the region were laser-focused on outcomes from the highly anticipated summit between U.S. President Donald Trump and Chinese President Xi Jinping in Beijing, looking for any shifts that could reshape trade, geopolitics and global energy flows.

The two leaders held talks at Beijing’s Great Hall of the People, covering the full scope of U.S.-China ties including the sensitive issue of Taiwan. Most market analysts entered the meeting with tempered expectations, projecting no major breakthroughs on longstanding bilateral disputes would emerge from the one-day summit.

Early futures trading for U.S. stocks pointed to a mild upward opening when markets resume trading stateside. Across East Asia, benchmark indexes painted a mixed picture: Japan’s Nikkei 225 gained 0.3% to close at 63,448.87, after climbing to an intraday all-time high above 63,700 earlier in the session, lifted by stronger-than-expected quarterly earnings from major Japanese corporations. South Korea’s Kospi advanced 0.5% to 7,884.71, with the biggest gains coming from the country’s technology sector. Hong Kong’s Hang Seng Index added 0.7% to reach 26,584.88, while mainland China’s Shanghai Composite Index pulled back 0.9% to 4,204.41. Australia’s S&P/ASX 200 posted a marginal dip of less than 0.1% to settle at 8,627.80, while Taiwan’s Taiex rose 0.6% and India’s Sensex climbed 0.5% by closing time.

Beyond equities, oil prices continued their upward climb, driven by persistent uncertainty over the ongoing two-month-old war in Iran. Market participants have pinned hopes on the Trump-Xi summit to deliver diplomatic progress, after senior U.S. officials noted that Beijing maintains close economic ties with Tehran that could be leveraged to pressure Iran into reopening the critical Strait of Hormuz, a chokepoint for nearly a fifth of global oil supplies.

As of Thursday trading, Brent crude, the global benchmark for oil prices, rose 0.4% to $106.04 per barrel. That figure is far higher than the roughly $70 per barrel price seen just before the Iran conflict broke out in late February. The uptick came one day after the International Energy Agency warned that supply disruptions stemming from the Strait of Hormuz standoff are draining global crude stockpiles at a faster pace than ever recorded. U.S. benchmark West Texas Intermediate crude also gained 0.4% to trade at $101.43 per barrel.

Investors are also monitoring developments around China’s import policies for Nvidia’s cutting-edge H200 artificial intelligence chips. Nvidia CEO Jensen Huang is among a cohort of top U.S. business leaders including Tesla’s Elon Musk and Apple’s Tim Cook joining Trump on his Beijing trip, sparking speculation about potential shifts in tech trade rules.

On Wednesday, U.S. markets closed out the session with tech stocks leading broad gains that pushed major benchmarks to new record highs. The broad S&P 500 climbed 0.6% to 7,444.25, notching another all-time closing high. The tech-heavy Nasdaq Composite rose 1.2% to 26,402.34, also hitting a new record, while the blue-chip Dow Jones Industrial Average posted a modest 0.1% dip to 49,693.20.

In bond markets, the yield on the 10-year U.S. Treasury note edged down marginally to 4.46% from Wednesday’s 4.47%, but remains far above the 3.97% level recorded before the Iran war began. A government report released Wednesday showed U.S. wholesale prices spiked in April, driven largely by energy market volatility triggered by the Iran conflict. Also on Wednesday, the U.S. Senate confirmed Kevin Warsh, Donald Trump’s nominee, to serve as the next chair of the Federal Reserve, succeeding Jerome Powell, whom Trump repeatedly criticized for refusing to cut interest rates as quickly and deeply as the president demanded.

In currency markets, the U.S. dollar dipped slightly to 157.85 Japanese yen, down from 157.86 yen in the previous session. The euro also saw a marginal uptick, rising to $1.1715 from $1.1711.

Associated Press Business Writer Stan Choe contributed reporting to this article.

As former President Donald Trump prepares to travel to Beijing for high-stakes trade talks accompanied by a contingent of leading American CEOs, all eyes are turning to the core promise that defined his two election campaigns: rolling back decades of U.S. economic integration with China. While much has been written about Trump’s unorthodox model of state-aligned corporate policy, which blends tariffs, export controls, government equity stakes and personal pressure to advance American commercial interests, this analysis digs into a more pressing question: nearly a decade after Trump first took office on a decoupling platform, how much progress has the U.S. actually made?

To contextualize the current state of relations, it is necessary to revisit the bilateral economic model that dominated the mid-2010s. Back then, the division of labor was clear: U.S. companies led research and development, designed finished products, then sent blueprints to China for final assembly. Components often came from third-party Asian economies like Japan, South Korea and Taiwan, though Chinese suppliers were increasingly common, before finished goods were shipped back to the U.S. for marketing, sales and after-sales service by American firms.

This arrangement left both nations dissatisfied. American observers argued that shifting labor-intensive assembly to China had gutted U.S. manufacturing employment – a claim backed by empirical evidence – and warned that outsourcing low-value work would eventually lead to the loss of higher-value, high-skill activities down the line, a projection that has proven increasingly plausible. For their part, Chinese leaders resented being trapped in the low-value-added segment of global supply chains, watching the bulk of profits flow to foreign firms. As a result, both sides began implementing policies to dismantle the old framework and build a new commercial order.

China deployed targeted industrial policy to onshore high-value component manufacturing and cultivate homegrown “national champion” brands, while successive U.S. administrations under both Trump and Joe Biden worked to cut American trade dependence on China, alongside tightening export controls on critical strategic technologies like semiconductors – a step China later matched with its own restrictions on rare earth exports. It is widely acknowledged that China has already delivered on its half of the decoupling: today, far more Chinese-made finished goods rely on domestic components, and the country has climbed the global value chain to produce globally competitive brands including BYD, Huawei, Xiaomi, DJI and CATL.

The question that remains fiercely contested is whether the U.S. has succeeded in its goal of reducing reliance on Chinese manufacturing. On the surface, hard data suggests significant change: the share of U.S. imports sourced from China has fallen sharply since the first Trump-era tariffs took effect. Analysis from The Wall Street Journal shows that while some firms have relocated production back to the U.S. to avoid tariffs, the shift remains modest: a 2025 survey of Ohio manufacturers found just 9% had reshored some production from China, up from 4% in 2021, with 60% of that reshoring activity coming from China. Most production exiting China has moved to Mexico and Southeast Asian nations instead.

The impact of tariffs is clear even from Trump’s first, less aggressive term: U.S. buyers shifted imports of tariffed goods away from China while maintaining non-tariffed imports, and the expanded tariffs implemented in Trump’s second term – which far outpace duties levied on U.S. allies – have accelerated this shift. The reallocation has been concentrated heavily in other Asian economies and Mexico, with product-specific trends marking the change: first-term tariffs targeted low-value goods like furniture, footwear and apparel, where China’s market share was already declining gradually due to rising domestic labor costs. More recent duties have cut into Chinese exports of consumer electronics including personal computers and smartphones; just two years ago, most U.S.-bound PCs were assembled in China, and today the majority are assembled in Vietnam.

Decoupling is not limited to trade flows: the trend is equally pronounced in foreign direct investment. 2025 saw a wave of reports about U.S. multinationals moving production capacity out of China, and this anecdotal evidence is reflected in aggregate data, which shows a sharp collapse in foreign direct investment inflows to China. Most of this diverted investment has landed in Southeast Asia, though advanced manufacturing capacity has largely shifted to Europe. Three core factors are driving this capital exodus. First, tariffs have made manufacturing in China for export to the U.S. far more costly, giving multinational firms a direct financial incentive to halt new factory investments in China. Second, repeated experiences of technology appropriation by Chinese domestic firms, often with implicit or explicit government support, have cooled multinationals’ enthusiasm for accessing China’s market – many firms have entered China chasing access to its huge consumer base, only to lose their core technological advantages to local competitors that do not play by global market rules. Third, rising geopolitical tensions over Taiwan and the South China Sea have raised the specter of conflict, which would leave foreign-held factories in China at risk of blockade or expropriation, forcing companies to reevaluate their supply chain risk exposure.

Despite these clear trends, a contingent of decoupling skeptics – the so-called “macro camp” – argues that any apparent shift is largely illusory. This group, which brings together unlikely ideological allies from protectionist economists frustrated that tariffs have not reduced global trade imbalances to free-trade advocates at outlets like *The Economist* and the Peterson Institute who argue tariffs are inherently ineffective, claims that persistent U.S. trade deficits and Chinese trade surpluses prove Chinese goods are still reaching the U.S. via hidden indirect routes. I have long pushed back against this framing: the persistence of aggregate macro imbalances does not prove Chinese goods are still entering the U.S. at the same rate. China can simply find new export markets for its goods, while the U.S. sources imports from new suppliers, leaving overall global imbalances intact even as bilateral trade between the two powers shrinks.

That said, to resolve this debate it is necessary to test the most common claims that decoupling is a myth. The most frequent argument is transshipment: the idea that Chinese firms evade tariffs by labeling goods “Made in Vietnam” or another third country before shipping them to the U.S. But analysis from economist Gerard DiPippo finds transshipment plays only a minor role, accounting for at most 18% of China’s lost U.S. export volume, and likely far less. DiPippo’s analysis compares what products China stopped exporting to the U.S. and what products China increased exports of to Vietnam after tariffs took effect; if large-scale transshipment were occurring, these product categories would align, and they generally do not.

A more credible argument focuses on trade mismeasurement. A persistent gap exists between the value of goods the U.S. records as imports from China and the value of goods China records as exports to the U.S., with China’s recorded decline far smaller than the U.S.’s. Much of this gap has been attributed to the de minimis exemption, which allowed Chinese firms to ship small packages directly to U.S. consumers tariff-free. Chinese manufacturers exploited this loophole by breaking large bulk orders into multiple small shipments to avoid duties. However, Trump closed this loophole via executive order in mid-2025, so it cannot explain the continued decline in Chinese exports to the U.S. over the past year.

The most convincing argument for continued hidden reliance on Chinese manufacturing centers on intermediate goods. Just as 2011’s “Made in China” iPhones relied heavily on components from Japan, South Korea and Taiwan, today’s “Made in Vietnam” iPhones often include large volumes of Chinese-made parts. Since high-value components account for the majority of a finished electronics product’s total value, this would mean the U.S. remains indirectly dependent on China even as final assembly shifts abroad. A 2024 study by Hsu, Peng and Wu found this effect is substantial, concluding that U.S. importers retain significant indirect dependence on China via third-party suppliers in Vietnam and Mexico. The major limitation of this research, however, is that its data only extends through 2022, the same cutoff for the OECD’s value-added trade data – the other key source for measuring indirect dependence. Even with this limitation, OECD data shows that U.S. import dependence on China on a value-added basis was declining before the COVID-19 pandemic, ticked back up during pandemic-related supply chain disruptions, and resumed its decline in 2022, matching the trend for gross import volumes.

What does this all add up to? The old bilateral model, where U.S. firms designed products and China assembled them for American consumers, is well and truly gone. The new normal is one where Chinese firms sell intermediate components to assemblers in other countries, which then export finished goods to the U.S. This is not an insignificant shift. It demonstrates that Chinese firms have successfully moved up the global value chain to become direct competitors to foreign multinationals. At the same time, final assembly, while the least profitable segment of the value chain, is still economically meaningful: it was the starting point for China’s own decades-long industrialization drive. The fact that U.S. tariffs have pushed this assembly work out of China is a meaningful change. It does not eliminate U.S. dependence on Chinese manufacturing entirely, but it reduces it. And just as China moved from assembly to component manufacturing over time, there are early signs that Vietnam and other emerging manufacturing hubs could follow the same path. There is no inherent reason China must remain the world’s default factory: other nations can develop industrial capacity just as China did.

Building a fully non-Chinese supply chain will not happen quickly or easily, and progress has been slower than headline trade numbers often suggest. But the U.S. has made a clear, promising start, and tariffs on China have been a core driver of that progress. While much of Trump’s trade policy has been haphazard, misdirected and marred by corruption, the decoupling project – which was continued by the Biden administration – has begun to deliver tangible results. It would be a missed opportunity if Trump abandons this progress on his upcoming trip in exchange for trivial short-term concessions like increased Chinese purchases of U.S. soybeans.

After a year of heightened 2025 trade conflict that laid bare the deep mutual economic vulnerability of the world’s two largest economies, U.S. President Donald Trump and Chinese President Xi Jinping are convening in Beijing for a high-stakes summit aimed at patching over some of the most costly damage from a decade of escalating trade tensions. A 10-year standoff between Washington and Beijing has gutted the once-booming bilateral trade that defined the early 21st century, forcing companies across both nations to restructure global supply chains, seek alternative markets, and adapt to a new era of fractured commercial ties. Many U.S. corporations have relocated manufacturing capacity out of mainland China to lower-wage markets such as Vietnam and India, while Chinese exporters have scrambled to cultivate new consumer bases across Europe and Southeast Asia to offset lost American sales. Yet despite years of decoupling efforts, both sides are increasingly acknowledging that complete economic separation is unfeasible. Former U.S. Commerce Secretary Wilbur Ross, who served in Trump’s first administration, noted: “The idea of somehow China being totally independent of us and us being totally independent of China, I think, is a fiction.”

This week’s leadership summit is focused on stabilizing the bilateral economic relationship, with observers not expecting sweeping, transformative policy announcements. The most widely anticipated outcome is an extension of the temporary trade truce reached between the two powers last October. Additional expected measures include a Chinese pledge to increase purchases of U.S. agricultural goods including soybeans and beef, as well as new orders for American-built Boeing commercial aircraft. U.S. officials have also previewed plans to establish a new bilateral Board of Trade to manage ongoing commercial disputes.

Stakeholders on both sides are watching the talks closely. For American farmers, who were locked out of the Chinese soybean market for most of 2025, and U.S. manufacturers dependent on Chinese rare earth minerals for products ranging from consumer smartphones to military fighter jets, even modest progress would bring significant relief. On the Chinese side, factory owners are hoping the summit will unlock incremental improvements to commercial ties, even if a return to the record trade volumes of 15 years ago remains out of reach. Michael Lu, founder and chief executive of Dongguan-based gift box manufacturer Brothersbox, noted that the U.S. long served as a far more stable market than many emerging alternative outlets, making even partial easing of tensions a welcome shift.

### The Collapse of Once-Thriving Bilateral Trade
Before Trump first imposed sweeping tariffs on Chinese imports in 2018, the average U.S. duty on Chinese goods stood at just 3.1%, according to data from Chad Bown of the Peterson Institute for International Economics. Even after pulling back from the triple-digit peak tariffs hit briefly in 2025, average U.S. tariffs on Chinese goods still remain near 48% today. In 2016, China was the United States’ largest single trading partner, with bilateral trade accounting for more than 13% of total U.S. global commerce. By 2025, that share had been cut in half to just 6.4%, pushing China behind neighboring trade partners Mexico and Canada to drop to third place.

The pre-2018 U.S.-China trade boom was long marked by a massive structural imbalance, with China exporting far more to the U.S. than it imported in return. The U.S. bilateral goods and services trade deficit with China peaked at $377 billion in 2018, but fell to $168 billion last year — the lowest level recorded since 2004. Even as its exports to the U.S. declined, however, China expanded sales to other global markets, particularly Southeast Asia and Europe, allowing the country to post a record annual global trade surplus of $1.2 trillion in 2025.

### Chinese Firms Adapt With Creative Workarounds
Many trade analysts note that official U.S. government data likely overstates the actual decline in Chinese goods reaching the American market. To avoid steep U.S. tariffs, a large number of Chinese manufacturers have shifted final assembly operations to Southeast Asian nations including Vietnam and Thailand, then transship finished products to the U.S. under those countries’ tariff quotas. The Trump administration has pledged to crack down on this practice, which it labels tariff evasion. As Chinese exports to the U.S. dropped in 2025, U.S. imports from Southeast Asia surged: rising 42% from Vietnam, 44% from Thailand, and 24% from Indonesia. Zongyuan Zoe Liu, senior fellow for China studies at the Council on Foreign Relations, argued: “It would be wrong to think that China is no longer relevant for the U.S. market. Chinese goods are still coming into the U.S.”

Velong Enterprises, a Guangdong-founded manufacturer of kitchen gadgets and grilling tools that supplies Walmart and other major U.S. retailers, began diversifying its supply chain shortly after Trump’s first term began, adding new production capacity in Cambodia and India to serve American customers. “Most serious manufacturers did not simply ‘leave China,’” said Velong founder and CEO Jacob Rothman. “Instead, they built multi-country supply chains centered on China.”

### Small U.S. Businesses Bear the Brunt of Erratic Tariff Policy
The prolonged trade war has hit small and medium-sized U.S. businesses particularly hard, due to volatile, unpredictable tariff adjustments that make long-term cost planning nearly impossible. Appu Jacob Varghese, owner of Zion Foodtrucks, a small food truck manufacturer based outside Colorado Springs, relies on imported Chinese equipment for the custom vehicles he builds. “Last year, a lot of my hair turned white,” Varghese said. His business was upended by erratic tariff changes that shifted week to week, at one point spiking to 145% on key Chinese components. Because Zion Foodtrucks signs fixed-price contracts with customers and delivers new vehicles within six weeks, Varghese was unable to pass sudden cost increases on to buyers, forcing him to absorb hundreds of thousands of dollars in unexpected expenses. He has since shifted half of his cooking equipment sourcing to Vietnam and Thailand, and fire-suppression gear to U.S. and Israeli suppliers. While he speaks highly of his former Chinese suppliers, he says he will never return to heavy dependence on them: “Given the testy relations between Washington and Beijing, it’s too risky.”

### A Broad Shift in Sourcing Strategies
Large U.S. multinationals have also joined the push to reduce reliance on Chinese manufacturing. Apple has shifted a portion of its iPhone production to India, while athletic apparel giant Nike has expanded manufacturing capacity across Vietnam. Sarah Tan, a Singapore-based economist covering China for Moody’s Analytics, explained: “Trade tensions can flare up quite quickly, and that makes the U.S. firms hesitant to rely too heavily on Chinese supply.” InStyler, a Los Angeles-based hair appliance manufacturer that once sourced all of its products from China, is moving some high-end production to South Korea and France, with plans to add capacity in Italy, Vietnam and Mexico. While CEO Dan Fugardi said the shift is partially driven by demand for European-made cachet among luxury hotel clients, reducing Chinese dependence “doubles as an insurance plan so that we’re not caught with our pants down” if tensions escalate again.

### Tit-for-Tat Escalation Goes Beyond Traditional Tariffs
The trade standoff has long expanded beyond traditional import taxes, escalating into targeted measures targeting key strategic sectors on both sides. The U.S. has blocked exports of cutting-edge advanced semiconductors to Chinese firms, while China has retaliated by periodically cutting off exports of rare earth minerals critical to electronics manufacturing. Last year, Beijing also restricted exports of tungsten, a high-strength metal used in defense, aerospace, and medical device manufacturing — a sector where China controls roughly 80% of global supply. China also halted all purchases of U.S. soybeans for most of 2025, a deliberate blow to Trump’s political base in rural America. Even after purchases resumed following October trade talks, U.S. soybean exports to China fell 75% for the full year.

The years of escalating conflict have made clear just how much damage each power can inflict on the other. Now, leaders on both sides are hoping the Beijing summit will de-escalate tensions and lay the groundwork for a more stable commercial framework. “We are the No. 1 trading player. They are next in line,” Ross said. “We have to coexist in some way. The question is, what will be the rules of the road, and who will benefit the most from those rules.”