It’s been a hard day’s night, and I’ve been working like a dog
It’s been a hard day’s night, I should be sleeping like a log
But when I get home to you I find the things that you do
Will make me feel alright
– The Beatles
“Beggar-thy-neighbor” is now all over the news. The accusation is of course leveled at China by Western media. The US is somehow not tarred by this allegation despite its asset stripping of Taiwan and South Korea’s semiconductor industry, blowing up the Nord Stream pipeline and mugging (in progress) Venezuela for oil, not to mention Trump’s tariff war against the world.
To be fair, beggar-thy-neighbor refers to a narrow set of policies by which one country solves its economic problems (like unemployment) by shifting the burden to other countries through protectionist measures like industrial subsidies, tariffs, import restrictions and currency devaluations. These allegations are more easily leveled against China while the US is more accurately engaging in outright banditry.
In November 2025, China’s trade surplus cleared the psychological hurdle of $1 trillion for the first time, setting off rounds of hand wringing and pearl clutching across the Western business press. A Financial Times opinion columnist lamented that “there is nothing that China wants to import, nothing it does not believe it can make better and cheaper, nothing for which it wants to rely on foreigners a single day longer than it has to.”
Not to be outdone, his Wall Street Journal counterpart quoted Rush Doshi, formerly of President Biden’s National Security Council, as saying that “China is driven by a fortress mentality and sees industrial dominance as key to wealth and power. These are longstanding goals deeply rooted in nationalism and the Communist Party.”
The Financial Times and the Wall Street Journal have a point. Despite decades of external pressure to increase domestic consumption and reduce trade surpluses, all indications are that China’s 15th Five Year Plan will double down on advanced manufacturing by investing in science and technology.
This, however, is much more than a “longstanding goal deeply rooted in nationalism and the Communist Party,” as Rush Doshi feebly declares. What we are witnessing is far more profound. We are watching the ascendancy of a new Chinese dynasty. China exists to generate surpluses. Over millennia, China became China as it figured out how to marshal resources and generate ever greater surpluses through governance and engineering.
Chinese civilization began 4,000 years ago with the Xia, a proto-dynasty who first organized corvée labor to dike the Yellow River, which flows across the fertile loess plains of central China. When it behaves, the Yellow River irrigates China’s most productive farmland. When it does not behave, floods wipe out decades of settlements. The Xia organized the populace to build protective levees along the banks of the Yellow River providing proof of concept for the Chinese civilization.
Two thousand years later, the Qin kingdom further developed this concept by constructing the Dujiangyan irrigation system which turned the Sichuan basin into a breadbasket, feeding Qin troops as they consolidated warring states into the Chinese empire. Subsequent dynasties built the Great Wall, the Grand Canal, the world’s most extensive high speed rail network, multiple ultra-high-voltage power lines and the Great Green Wall to stop desertification.
The Chinese civilization generates surpluses by design. The Chinese people, during dynastic ascent, will produce more than they consume. Surpluses are in China’s civilizational DNA with roots in the semi-mythical Xia Kingdom and the founding Dynasty of Qin. Dynasties collapse when consumption exceeds production due to poor governance, venal officials and/or imported narcotics. This often manifests physically when levees are poorly maintained with resulting floods auguring the end of the mandate of Heaven.
Beggar-thy-neighbor economic policies, as far as they are pursued, are rounding errors in the imperatives that drive Chinese civilization. China, by definition, will produce more that it consumes. That’s just the way it is. How this surplus manifests economically may change but surplus there will be.
The virtue of qinlao (勤劳) is highly prized in Chinese civilization. Dictionary definitions such as “diligent,” “industrious” and “hard working” do not quite capture the essence of qinlao which contains elements of humbleness, thrift and joy in honest labor. The compliment is more often bestowed upon a group rather than an individual. China’s migrant workers and Mexican immigrants in the US are more aptly described as qinlao than, say, an investment banker – despite his crushing hours.
China’s qinlao spirit diked the Yellow River, built the Great Wall, dug the Grand Canal, tunneled through the Sierra Nevada Mountains and threw up a hundred glittering metropolises in a few short decades. The qinlao spirit also generated a $1 trillion trade surplus which is making Western commentators uncomfortable. It really should not. China’s exports to the US and Europe have been stagnant or declining since 2022.
What really drove China’s trade surplus to record levels are surging exports to developing economies – ASEAN, Latin America, Africa, Russia, Central Asia and South Asia. In 2000, the West (US, EU, 5 Eyes, Japan and Korea) accounted for 60% of China’s exports. By 2024, this had fallen to 43%. Surging exports to Africa, Latin America and India in 2025 has surely reduced this even further.
While Trump’s tariffs and Europe’s stagnation have taken a toll, the world has also moved on. On purchasing power parity, the 10 BRICS economies are now 50% larger than the G7, up from half its size in 2000. Similarly, the West (US, EU, 5 Eyes, Japan and South Korea) accounted for 37% of the world economy in 2024, down from 55% in 2020. China’s exports now and in the future will be driven by developing economy growth.
The vast majority of China’s surpluses are accumulated domestically as massive investments in urbanization, infrastructure and industry. The surpluses flowing out of China are quite modest – a current account surplus 2.2% of GDP in 2024.
China should actually export more to developing countries. The Global South needs capital and capital goods far more than they need markets. The East Asian export model of economic development was half-assed backwards. Tightening one’s belt to lend money to rich customers and building capital stock through retained earnings bit by excruciating bit only succeeded because of East Asia’s qinlao spirit. It will not work for everyone. Most nations cannot endure a decades-long sweatshop phase.
The Western development model offered to the Global South was, “You are totally corrupt and a basket-case and the cost of industrializing is $100B which you don’t have so how about some grassroots programs like microfinancing for village women’s handicraft co-ops?”
The new development model offered by China is, “The cost of industrializing is $50B and, at that price, it doesn’t matter how poorly governed you are so China will lend you the money.”
China’s brutally competitive industrial sector has lowered the price of capital goods and services like diesel trucks, electrical equipment, excavators, engineering/construction management and, yes, cars which are capital goods in developing economies. China’s offerings come in at a fraction of the price of Western equivalents.
For much of the Global South, China is the only game in town. The West consumes more than it produces, runs current account deficits and fights the Global South for China’s capital flows. The West has the ability neither to finance the purchase of capital goods nor to offer such goods at competitive prices. This is the tragedy of the Lucas Paradox – in which, countrary to the dictates of classical economics, capital flows from poor economies to rich – which the emergence of China is just beginning to reverse.
The West is, however, excellent at sanctimony, accusing China of either debt trapping developing economies or hoarding low value add manufacturing industries. All of this is a strange rejection of classical economics. The US and the EU now operate as if Adam Smith, David Ricardo and Jean Baptiste Say were never born. Competition is overcapacity, comparative advantage does not apply and demand leads to supply. It is all a very bewildering 180 from just a decade ago.
China, in contrast, is following the dictates of classical economics. Capital is flowing from a richer China to the poorer Global South through the Belt and Road Initiative. Cutthroat competition in China has lowered the price of capital goods such that Global South industrialization is increasingly achievable (witness surging exports of solar panels to Africa). Developing economies cannot truly know their comparative advantage without investing in infrastructure – otherwise, they will be forever stuck in poverty industries like village handicrafts.
In an egregious critique of China’s soup to nuts exports of manufactured goods published in Semafor, a Western commentator wrote:
Even weavers of traditional Indonesian batik – a fabric made through a dyeing technique using wax – have given up trying to compete with cheap Chinese knock-offs…. Village-based cottage industries are particularly at risk; for example, makers of hand-painted ceramic “rooster” bowls have been idled en masse by Chinese fakes that sell for one fifth of the price.
That is Western sanctimony at its worst. Do we really want developing economies to be subsisting on rooster bowls and traditional batiks? The production of low end batiks and rooster bowls has been automated in China. Indonesian and Thai handicrafts no longer have comparative advantage in low end manufacturing.
China is willing to make multi-billion dollar BRI loans to both Indonesia and Thailand to build infrastructure – rail, roads, telecommunications, electrical systems. The resulting efficiency gains will elevate overall industrial capacity and whatever products end up having comparative advantage in the upgraded Indonesian and Thai economy will operate at a far more consequential scale. And if handcrafted batiks and rooster bowls continue to be a valued artisanal product, high end versions will fetch premium prices as wages are pushed up by Baumol’s law – like artisanal knife makers in Japan.
The West has curiously latched onto the “lump of work” economic fallacy – the idea that there is just so much manufacturing to go around which everyone is competing to do. And big bad China is breaking all the rules to steal this lump from everyone else.
China certainly is doing a lot of work. That’s just what a qinlao China does. It cannot be any other way. But this “lot of work” that China does should not, according to Say’s law, prevent anyone else from doing as much or as little work as they like. In fact, that China has produced some gewgaw is at least an invitation to produce something to exchange. After all, China is not giving things away for free.
Some economies may want greater leisure and choose not to make anything to exchange but, instead, trade assets (e.g. real estate, stocks, gold, government debt). For developing economies which do not have sufficient goods nor assets to exchange, China is increasingly willing to take IOUs (Belt and Road loans) – especially if the loans are used to build infrastructure/industrial capacity which will result in the production of tradable goods in the future.
After a COVID lull, China’s Belt and Road loans have kicked into high gear. According to Australia’s Griffith University, 2024 was a record year for the Belt and Road program. This will likely be dwarfed in 2025 as full year 2024 loans were already exceeded in the first half.
IMF head Kristalina Georgieva recently implored China to increase consumption because the country “is simply too big to generate much growth in exports, and continuing to depend on export-like growth risks furthering global trade tensions.”
China is unlikely to follow this advice as household consumption is not at all low (see here, here and here) having outgrown all other economies in the past few decades. While it is true that China is producing more than it consumes, the surpluses have largely accumulated as domestic urbanization, infrastructure and industry. Exports are now shifting to the Global South, who need capital and capital goods far more than they need markets.
The next leg of globalization is now upon us. This is what all the previous legs were leading to – the re-emergence of a wealthy China whose qinlao surpluses can flow to developing economies, reversing the Lucas Paradox. The West, which does not run surpluses, will not be a player. While this will surely cause consternation for those accustomed to calling the shots, it cannot be any other way. The West just could not sustain surpluses, for whatever reason. Firebrand industrial party intellectual Wang Xiaodong’s prescient 2011 essay will describe the coming world for decades to come:
We must go out to meet the world. Not only do we want our products to “go global,” we also want our industrialization to go global, and our high-quality talent to go global. We can spread industrialization to every corner of the world. Many of our scientists and technicians will travel around the world to work, bringing with them civilization, a dignified existence, and relief from poverty. This is one thing that Westerners have been unwilling or powerless to accomplish.
