陳玉宇
Professor at Peking University Guanghua School of Management
The term “this year” in this article refers to 2026; the data for that year in this article are all data that have been published so far.
China’s exports will grow rapidly in 2026, and so will its imports. A natural question is: How much of China’s economic growth this year will come from exports?
The most common answer is to look at net exports, i.e. NX = X − M.
This answer is correct in a national accounts sense.
According to the expenditure method,
GDP = C + I + G + X − M.
Therefore, to calculate the contribution of net exports in national accounts to GDP growth, of course we should look at the changes in X − M.
The problem is that we often ask it to answer another question: How much of China’s domestic value added does export expansion correspond to?
These two questions are not the same.
1. Why is net export not a satisfactory answer?
To understand this, we must first ask: Why are imports subtracted from the GDP accounting identity?
The reason is not that imports themselves reduce GDP.
When a Chinese household purchases 10,000 yuan of imported goods, the 10,000 yuan will first be included in consumption C; when a Chinese enterprise purchases an imported machine, it will also be included in investment I first. However, these goods are not produced in China and cannot be included in China’s GDP, so they must be deducted through M.
Therefore, −M is first an accounting adjustment term. Its function is to exclude the overseas added value contained in consumption, investment, government purchases and exports.
This also means that net exports are not strictly a “source of demand”.
An extreme example can illustrate the problem. Assume that exports remain completely unchanged, but the domestic economy declines, consumption and investment decline, and imports therefore decrease by 100 units. but
ΔNX = 0 − (−100) = 100.
The accounting contribution of net exports to GDP growth has increased, but no foreigners have bought one more Chinese product as a result. The increase in the so-called “external demand contribution” comes entirely from the contraction of domestic demand.
The situation in China this year exposed the same problem in the opposite direction. Assume that both exports and imports increase by 15 units, and net exports do not change. According to the expenditure method, the contribution of net exports to GDP growth is zero. But overseas markets did purchase 15 more units worth of Chinese goods, and China did increase production for this purpose.
What’s the problem?
2. Re-examine GDP according to demand sources
A clearer approach is to re-decompose GDP by source of final demand.
Let DV A(j) represent the added value created in China to satisfy the jth type of final demand, where j =C, I, G, X. So:
GDP = DV A(C) + DV A(I) + DV A(G) + DV A(X).
Each of these items only counts added value created within China.
Once written like this, the problem becomes clear. The imported component of consumption should be deducted from total consumption expenditure; the imported component of investment should be deducted from investment; the same applies to government purchases; the overseas added value of exports should be deducted from exports.
traditional identity
GDP = C + I + G + X − M
Of course they are completely equivalent in accounting terms. However, for the convenience of accounting, it concentrates the imported components in various types of final demand into item M and deducts them in one go.
If we are talking about total GDP, there is no problem in doing so. If you want to know how much China’s domestic value added corresponds to different final demands, you cannot deduct all imports under the export heading.
What really corresponds to the export should be:
DV A(X) = X − Overseas value added included in exports.
This is China’s domestic added value absorbed by overseas markets.
3. How much is this year?
With this concept in mind, back-of-the-envelope calculations are simple.
OECD trade value added (TiVA) data shows that the domestic value added rate of China’s exports has been significantly higher than the period when processing trade was dominant, and is currently above 80%. In other words, for every 100 yuan of China’s exports, more than 80 yuan corresponds to the added value created within China.
If this year’s export growth is about 15%, the export scale accounts for about 20% of GDP, and the export domestic value-added rate is 82%, then
ΔDV A(X)GDP≈ 15% × 20% × 82% ≈ 2.5%.
In other words, a very rough estimate is that the domestic added value corresponding to this year’s new exports is approximately equivalent to 2.5% of GDP.
If this year’s GDP growth is about 5%, just for an order of magnitude comparison, this is equivalent to about half of the GDP increase in the same period. This is already a large number.
There is an important question of caliber here, though. About 15% of export growth is the growth rate of nominal trade volume, while the GDP growth rate is the actual growth rate calculated at constant prices. Export prices and exchange rate changes will affect the former. Strict accounting should use constant price export growth and the corresponding domestic value added rate.
Therefore, 2.5% should first be understood as an order of magnitude estimate. It shows that the importance of export expansion to China’s production this year may be much higher than the contribution rate of net exports to GDP growth indicates.
4. Export absorption does not equal external demand stimulation
Here we need to distinguish between two easily confused concepts: export absorption and external demand stimulation.
Export absorption asks: How much more domestic added value created by China has been absorbed by overseas markets this year than last year. The previous estimate of about 2.5% answers this question.
“External demand drives GDP growth” is a causal judgment. It implies a counterfactual: If foreign demand had not increased, how much less would China’s exports have been? What happens to the products that are not exported?
If these products are instead sold domestically, or the labor and capital used to produce them are transferred to other sectors, then the observed increase in exports cannot all be counted as an increase in GDP.
To drive external demand in the strict sense, we should compare the GDP difference between the actual world and the counterfactual world where “foreign demand has not changed”. This requires both identifying foreign demand shocks and taking into account the consequent equilibrium adjustments in the domestic economy.
Therefore, there is a counterfactual between export absorption and external demand stimulation.
When will the two be close? The key depends on where these productive capacities would have gone in the counterfactual world.
If the economy is close to full employment, and without these exports labor, capital, and intermediate inputs would still be absorbed by other domestic sectors or uses, then increased exports would primarily mean a reallocation of resources. At this time, export absorption can be very large, but the net increase in GDP brought by exports is much smaller.
If domestic demand is insufficient and there is idle production capacity, and without these overseas orders, a considerable part of production would not have occurred, then the increased absorption in overseas markets will be closer to the actual increase in GDP.
What is really worth discussing about China’s economy this year is the extent to which the latter scenario holds true.
5. Three different questions
Therefore, when discussing the importance of exports to China’s economic growth this year, at least three levels should be distinguished.
The first level is national accounts accounting:
ΔNX = ΔX − ΔM.
It tells us how much the accounting item net exports contributes to GDP growth.
The second layer is outlet absorption:
ΔDV A(X).
It tells us how much of China’s domestic added value has been absorbed by new overseas markets. A rough estimate is that this year this scale may be equivalent to more than 2% of GDP.
The third level is external demand in a causal sense:
Y real Y real − Y without Y without external demand change counterfactual.
It asks: How much smaller would China’s GDP be if foreign demand had not changed accordingly? This is no longer a question that can be answered by an accounting identity.
These three numbers may be very different.
In years when domestic demand is weak and imports fall, the growth contribution from net exports can be large, because the contraction in domestic demand itself depresses imports. In years when exports and imports grow rapidly at the same time, the contribution of net exports may appear unimportant, because the growth in imports brought about by consumption, investment, and production activities offsets the growth in exports in accounting terms. This year China is closer to the latter situation.
Therefore, if we want to know how important overseas markets will be to China’s economy this year, it is not enough to just look at net exports. A more appropriate starting point is to calculate China’s domestic value added absorbed by overseas markets.
As a rough estimate, this year’s export growth is about 15%, exports account for about 20% of GDP, and the domestic value-added rate of exports is about 80% or more. This scale is equivalent to about 2.5% of GDP.
How much of this actually constitutes a net increase in GDP depends on a deeper counterfactual question:
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