HONG KONG, Aug 10 – China is trying to export its way out of a domestic slump, unleashing what many Western governments call a second “China shock.” While this strategy is triggering trade fights abroad, it’s also producing a new set of potential beneficiaries at home.
The dichotomy between China’s robust external sector and flagging domestic economy has been on full display in recent months. China posted 24% year-on-year export growth in July and a $113 billion trade surplus, following similar numbers in June, putting it on track for another trillion-dollar-plus surplus in 2026. Meanwhile, it recorded disappointing 4.3% GDP growth in the second quarter, and subdued retail sales growth of minus 0.6% in May and 1.3% in June.
This split is not an accident but directly reflects Beijing’s policy choices. Over the past decade, the world’s largest exporter has sought to gain dominance in advanced manufacturing, amassing enormous market share in products such as electric vehicles , solar cells and batteries. Western policymakers have dubbed this “China Shock 2.0,” echoing the period in the early 2000s, when China’s rise as a manufacturing exporter disrupted industries across Europe and the U.S. Governments today argue that a new wave of subsidized Chinese EV and green-tech exports is undercutting producers and threatening industrial jobs, particularly in Europe. Europe has responded through a combination of sectoral tariffs, more stringent cybersecurity requirements and exhortations to China to appreciate its currency. At the same time, U.S. President Donald Trump has doubled down on tariffs. While these tensions have been building abroad, Beijing has only taken modest steps to increase consumption at home. The Chinese government has implemented some measures to limit the cutthroat price wars crushing domestic profitability in industries such as food delivery, EVs and solar components, but this so-called “anti-involution” campaign has had limited success. Chinese companies have thus had to adapt. To shield lucrative international revenue streams from global fragmentation, firms are increasingly manufacturing directly in core consumer markets to bypass trade barriers, build local support, and insulate supply chains from geopolitical disruption — while escaping an unprofitable domestic market. Again, this is not an organic development, but part of a policy initiative: Beijing’s “Globalization Phase 3.0”.
This new road map is creating the potential for new winners and losers in the world’s second-biggest economy.
The firms best positioned to benefit from these policy shifts are, unsurprisingly, concentrated in the sectors that dominate China’s export landscape. This includes companies in the EV and battery supply chains, where China represented 65% of global intellectual property in 2024. EV leaders BYD and Geely, and battery major CATL not only command large global market shares but also run globally diversified manufacturing bases and supply chains.
Consumer electronics titans Midea and Haier also operate fully integrated global systems combining localized research and development , manufacturing and distribution in Southeast Asia, Latin America, the U.S. and Europe.
Other potential winners include companies that produce critical technological components with few, if any, Western-produced substitutes. Zhongji Innolight and Eoptolink manufacture optical transceivers that are deeply integrated into the global AI hardware and data center supply chains. Their large production pipelines in Southeast Asia can help to insulate them from potential trade disputes with Western clients. However, some of these companies may also find themselves directly in the crosshairs of the escalating trade conflicts. For example, the White House is considering a ban on U.S. imports of new models of Chinese data center components, according to a report by Reuters.
Beijing’s policy response to the criticisms of its export imbalances with the U.S. and Europe may involve allowing its currency to appreciate, creating another set of potential corporate “winners”. The yuan has rallied 3.6% against the dollar and 5.5% against the euro in 2026, as of August 7. Yet, over the last decade, the currency has actually depreciated against the euro by 6% even as Europe’s trade deficit with mainland China has more than doubled. Against the dollar, the yuan has depreciated by a more modest 2% as the U.S.’ trade deficit with China has expanded 10% during this period. This dynamic highlights just how much deep-seated undervaluation could still be corrected.
Obvious beneficiaries of the yuan’s appreciation against the euro would be companies with significant euro-denominated debt, whose liabilities shrink when the yuan surges. Large state-owned enterprises like Sinopec fall into this category.
Meanwhile, an appreciation against the U.S. dollar could directly benefit China’s “Big Three” state-owned airline carriers: Air China, China Southern and China Eastern, whose massive dollar-denominated debt burdens would decrease in local-currency terms.
Companies best positioned for this new environment may still need to watch out for headwinds.
For one, bumper exports do not necessarily translate into strong equity performance. For instance, overseas deliveries of EV giant BYD have grown more than 70% in the first half of this year compared with this same period last year, but the stock has declined, dragged down by a fierce domestic price war. Exogenous shocks could also limit any positive impact from Beijing’s policy shifts. For example, Chinese airline stocks have dropped precipitously since February, largely thanks to the energy price shock triggered by the U.S.-Iran war. This conflict could keep jet fuel prices high even if there is an interim deal due to the shortage in global refining capacity.
The first “China shock” reshaped the world’s industrial order, serving as the fulcrum for an era of increased globalization. This time around, Chinese companies can’t depend on enhanced cooperation and lower trade barriers, but will instead likely face an environment characterized by fragmentation, conflict and meaningful pushback by the world’s other major economic powers.
Enjoying this column? Check out Reuters Open Interest , your essential new source for global financial commentary. Follow ROI on LinkedIn, and X. And listen to the Morning Bid daily podcast on Apple, Spotify, or the Reuters app. Subscribe to hear Reuters journalists discuss the biggest news in markets and finance seven days a week.
This article was generated from an automated news agency feed without modifications to text.
