High Trade Surplus, Domestic Deflation, and Rising Unemployment: Divergence Phenomenon and Investment Insights for A-Shares

I. Core Facts of Macro Divergence and Characteristics of Capital Transmission

According to the information provided, China’s trade surplus in 2024 reached approximately $1.07 trillion, an increase of about 21% year-on-year, while CPI was only around 0.7% and PPI around -2.2%. Meanwhile, unemployment insurance expenditures rose by about 22% year-on-year. This indicates a clear structural divergence of ‘strong external demand and weak domestic demand’. At the A-Share level, the Shanghai Composite Index (000001.SS) rose by approximately 33.73% cumulatively from the beginning of 2024 to the end of 2025 (from about 2972.78 to about 3975.63), while the S&P 500 (^GSPC) rose by about 46.04% during the same period. This shows that A-Shares have structural market opportunities but overall performance lags behind U.S. stocks, which is consistent with the macro logic of ‘capital inefficiency and poor profit transmission’.

Why hasn’t the trade surplus fully translated into domestic liquidity and domestic demand? Typical mechanisms include:

• Lagging settlement of foreign exchange by export enterprises: When expectations for the RMB exchange rate change or risk aversion rises, enterprises tend to delay foreign exchange settlement or retain overseas assets, lengthening the transmission chain of ‘trade surplus → foreign exchange settlement → domestic credit expansion’.
• Structural bias in profit distribution: Profits from trade surpluses are more concentrated in export links and mid-upstream manufacturing, with limited pull on downstream terminal consumption and services, leading to slow domestic demand recovery.

II. Structural Opportunities for A-Shares: Three Relatively Clear Clues

Combined with public information, the current relatively clear investment directions include:

• Export and overseas expansion chain: Benefiting from resilient external demand and overseas production capacity/channel layout
  • Industry and order examples: Optical modules, liquid cooling, high-end manufacturing, and other links benefit from global AI capital expenditure; leading home appliance companies’ production capacity expansion in Southeast Asia and other regions and overseas revenue growth; new energy vehicles’ sales growth in mature markets such as Europe (e.g., a leading brand’s monthly sales in Europe are about 5,000 units).
  • Investment logic: Leading enterprises with high overseas revenue ratios and global competitiveness are expected to capture overseas demand, hedging against insufficient domestic demand and tariff uncertainties.
• “Anti-involution” and increased concentration of leading enterprises: Strict control over new capacity and accelerated clearance of inefficient capacity
  • Examples: Capacity integration in refining and chemical, photovoltaic, lithium battery, and other industries has accelerated under policy constraints, with signs of improved profit margins for leading enterprises.
  • Investment logic: Improved competition patterns are conducive to profit recovery for leading enterprises; priority is given to those with significant cost and technical advantages and healthy balance sheets.
• Tech and AI infrastructure theme: A resonance point of both external and domestic demand
  • Examples: Orders for computing chips, optical modules, liquid cooling, etc., are full, while vertical industry applications (medical, finance, etc.) are accelerating.
  • Investment logic: Resonance between policy and industry prosperity, relatively good matching of valuation and profit, suitable for medium-to-long-term allocation.

III. Impact of Capital Flows and Exchange Rates: Qualitative Judgment Rather Than Quantitative Conclusion

• Asymmetric impact of exchange rate changes on capital markets and the real economy: Phased stabilization or strengthening of the RMB helps enhance the attractiveness of A-Shares to foreign capital, benefiting financial weights such as securities firms and insurers; however, it will compress the exchange gains of export enterprises.
• From macro logic deduction: If the RMB remains relatively stable, it will help boost foreign capital inflow willingness, but excessive linear extrapolation should be avoided. Since no authoritative quantitative data on capital outflows or changes in foreign exchange reserves in 2024 have been obtained, specific numerical judgments on ‘foreign capital inflow scale’ or ‘capital outflow amplitude’ require more data support.

IV. Executable Investment Framework

• Main allocation lines:

1. Overseas expansion and external demand chain: Prefer leading enterprises with strong global competitiveness, high overseas revenue ratios, and perfect production capacity/channel layouts.
2. “Anti-involution” and concentration improvement: Allocate to leaders in sectors with improved supply patterns such as refining and chemical, photovoltaic, and lithium battery.
3. Tech and AI infrastructure: Focus on computing power, optical modules, liquid cooling, and vertical applications, selecting targets with fast order implementation and high valuation-profit matching.

• Auxiliary line: Seize structural opportunities of K-shaped recovery in the consumer sector, focusing on policy stimulus and brand upgrading directions (e.g., trade-in for new, product structure upgrading).
• Risk management:
  • Moderately control heavy positions in “pure domestic demand, weak cycle” sectors, avoiding excessive optimism about the timing and magnitude of domestic demand rebound.
  • Keep track of export chains with high tariff exposure, using batch and hedging methods to address uncertainties in order and policy rhythm.

V. Risk Tips and Data Limitations

• Key macro bases of this report (trade surplus, CPI, PPI, unemployment-related) come from public information provided by you; A-Share index and some market data come from securities firm APIs; opportunities at specific industry and individual stock levels mainly come from industry chain and order information in public reports. For some dimensions (such as precise changes in foreign exchange reserves and capital flows), no authoritative public data for 2024 have been obtained yet, so the conclusion on ‘capital outflow’ is only based on qualitative deduction of macro logic, not quantitative evidence.
• Tariff and trade friction policies are highly uncertain and may have non-linear impacts on export chains and valuations.

References
[0] Jinling API Data: Market performance of Shanghai Composite Index (000001.SS) and S&P 500 (^GSPC) from early 2024 to late 2025 (used for market benchmark and volatility background).
[1] JPMorgan 2026 MSCI China Index Investment Outlook: Four themes of AI infrastructure, anti-involution, overseas layout, and consumption recovery (provides industry chain and order examples) [Link]: https://hk.finance.yahoo.com/news/摩根大通看好2026-msci中國指數-ai-反內卷-海外佈局與消費復甦四大主題驅動-231004197.html.
[2] Zhihu “RMB Exchange Rate” topic and related Q&A: Exchange rate formation mechanism and onshore/offshore concepts (used for qualitative framework and risk tips) [Links]: https://www.zhihu.com/topic/19670081; https://www.zhihu.com/question/602311445.
[3] Industry and export structure-related images and report backgrounds: Factory and mine operation diagrams, export and trade environment-related video materials (used to understand industry and macro environment, non-quantitative conclusions) [Links]: https://s.yimg.com/.../79cc14d0-d5da-11f0-9efb-fa9f7cd69b4a; https://s.yimg.com/.../7b7bf900-d62d-11f0-afef-f9a2a6d23f14.

Important Notes: For more precise verification of capital flows, changes in foreign exchange reserves, export sub-sector profits, and company-level financials, it is recommended to further use macro and corporate financial data tools for special calibration and backtesting. The above analysis and suggestions are framework conclusions based on public information and macro logic, and do not constitute individual investment advice.