China Shock 2.0: structural drivers and implications for the euro area

Valentina Aprigliano (), Lorenzo Bencivelli (), Alessandro Borin (), Francesco Paolo Conteduca (), Francesco Corsello (), Stefano Federico (), Claire Giordano (), Fabrizio Leone (), Michele Mancini (), Ludovic Panon (), Lilia Patrignani () and Stefano Pica ()
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Valentina Aprigliano: Bank of Italy
Lorenzo Bencivelli: Bank of Italy
Alessandro Borin: Bank of Italy
Francesco Paolo Conteduca: Bank of Italy
Francesco Corsello: Bank of Italy
Stefano Federico: Bank of Italy
Claire Giordano: Bank of Italy
Fabrizio Leone: Bank of Italy
Michele Mancini: Bank of Italy
Ludovic Panon: Bank of Italy
Lilia Patrignani: Bank of Italy
Stefano Pica: Bank of Italy

No 1025, Questioni di Economia e Finanza (Occasional Papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: In the aftermath of the COVID-19 pandemic, China's goods exports have expanded strongly while imports have remained subdued, pushing the country's trade surplus to record levels and raising concerns about a new 'China shock'. This paper analyses the recent surge in Chinese exports and investigates its economic implications for the euro area and its main countries. We show that around three quarters of China's export growth since late 2023 has been driven by domestic factors rather than external demand. Weak domestic demand emerges as the main driver of the export surge, consistent with firms redirecting output abroad as domestic absorption weakens, while subsidies and technological upgrading also make a significant contribution. The shock spreads to the euro-area economy through three main channels. First, lower Chinese import prices exert sizeable disinflationary pressures: focusing on 2025 alone, the decline in Chinese import prices is estimated to lower consumer prices of non-energy industrial goods by about 1 per cent over three years. Second, stronger import competition weighs on manufacturing activity and reduces investment, especially in transport equipment and intellectual property, with possible adverse effects on innovation and long-term growth. Third, the technological upgrade in China and the subsequent increase in Chinese penetration in third markets significantly weakens euro-area export performance.

Keywords: China shock; Chinese exports; euro area; disinflation; import competition (search for similar items in EconPapers)
JEL-codes: E22 E31 F14 F62 (search for similar items in EconPapers)
Date: 2026-06
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