The China Shock 2.0 that isn’t

This is a guest post by Su Liang, who works at Xinhua. He draws on firsthand experience to explain why the narrative of so-called China Shock 2.0 is unsubstantiated.

In 2017, at the foot of a dormant Pacific volcano on Rarotonga, I met Colin Rattle, a 72-year-old jeweller in the Cook Islands. He was a quiet, reclusive craftsman who spent his days shaping black pearls in a small studio away from the tourist trails. As he spoke, my eyes drifted to a cardboard box perched high on a shelf.

On its side were Chinese characters and the name “ChinaTrans,” a logistics company. Rattle explained that he had ordered precision drills, the kind needed to bore clean holes through black pearls, from a Chinese online marketplace. The tools arrived straight to his workshop from a factory near Shanghai, shipping included.

Not long before, sourcing something that specific meant a five-hour flight to Auckland, with no guarantee of finding the right item and at a much higher cost. Ordering from China was not merely cheaper. It changed what was feasible. For the first time in decades, geography no longer set the outer boundary of his craft.

China entered Rattle’s life in the most ordinary way, not as a factory floor or a macroeconomic statistic, but as a digital supply chain that made a small business easier to sustain. This was globalization at its most mundane and at its most useful.

For years, that was how free trade was typically understood: as a broadly positive force, with manageable side effects. After 2018, the mood shifted. What had once been described as efficiency and integration was increasingly recast as vulnerability and threat. The phrase “China shock,” which had faded from public debate, returned with new urgency.

“China Shock 1.0” was the argument that low-cost Chinese imports helped hollow out parts of American manufacturing. “China Shock 2.0” extends the claim beyond the West, warning that China’s industrial scale and export push are now distorting markets across the developing world.

The “China Shock” story often starts from a simple picture: China sells more goods abroad, developing countries suffer, and the world needs to push back. That picture is emotionally intuitive, but it can be analytically misleading. A more careful reading of the evidence suggests three corrections.

First, rising export value is not the same thing as “more stuff flooding markets.” Part of what looks like an export surge is a shift in what China sells, and how much value is embedded in those products. Over the past decade and a half, China’s export structure has moved away from the older model of assembling imported parts for re-export and toward producing a larger share of the value at home. One way to see this is the domestic value added in exports. A Stanford Center on China’s Economy and Institutions analysis finds that China’s domestic value-added share in exports rose from 66 percent in 2007 to 76 percent in 2020, driven in large part by a decline in “processing trade,” the classic assembly-for-export model.

That matters because it changes what “more exports” actually means. When a country’s export value rises because it is exporting higher-value products, better components, more machinery, and more advanced systems, the appropriate question is not just who loses market share in a narrow sense, but also who gains from cheaper and better capital goods and from faster technology diffusion.

Nowhere is this clearer than in clean-energy supply chains. The International Energy Agency notes bluntly that China has been instrumental in bringing down costs worldwide for solar PV, with “multiple benefits” for clean energy transitions. Lower prices for solar panels and related equipment are not a side detail for developing countries. For many of them, energy is a binding constraint on growth and fiscal stability. A fall in the price of key energy technologies is a real economic benefit, even if it also forces painful adjustments in some manufacturing niches.

Second, the “victim” framing often ignores how trade works in supply-chain economies. Many developing countries import a great deal from China precisely because those imports allow them to export more. The key point is that in modern production networks, imports are frequently inputs, not just consumer goods that displace local firms. A World Bank “Taking Stock” report on Vietnam makes this logic explicit: Vietnam’s imports of intermediate goods are “highly correlated” with its exports, so when exports slow, imports of intermediates slow too.

Vietnam is a particularly useful example because it is frequently cited in Western debates as being squeezed by China while also being a major beneficiary of supply-chain reconfiguration. Yet the trade data show a country expanding on both sides of its trade account. Reuters reports that Vietnam’s exports rose 14.3 percent in 2024 to $405.53 billion, while imports rose 16.7 percent to $380.76 billion, still leaving a substantial trade surplus. The story here is not “China sells, Vietnam loses.” It is that Vietnam’s export platform depends on imported machinery and intermediate inputs, including from China, and that relationship can push both imports and exports higher at the same time.

This is the broader point: when commentators point to gross import numbers and declare “harm,” they often skip the crucial step of asking what those imports are for. If imported components, equipment, and materials are feeding export growth, then a simple “net victim” label becomes much harder to defend. Even where bilateral imbalances exist, gross flows alone do not tell you how much domestic value is being created, how many jobs are supported, or whether the importing economy is becoming more competitive over time.

Third, much of the loudest “Second China Shock” rhetoric is concentrated in Western debates, while many developing countries behave less like helpless victims and more like governments managing interdependence. That does not mean there are no frictions, no lobbying by domestic industries, and no trade remedies. It means that their revealed preferences do not look like a blanket rejection of economic ties with China.

One revealing signal is institutional: rather than disengaging, many developing-country blocs continue to deepen economic arrangements with China, including in newer areas such as digital trade, green economy cooperation, and supply-chain connectivity. Reuters reports that China and ASEAN completed negotiations on an upgraded version of their free trade agreement, “FTA 3.0,” expanding cooperation in precisely these forward-looking domains; Reuters also notes that ASEAN is China’s largest trading partner, and provides the scale of that relationship. That is not what a region does if it believes it is structurally losing with no offsetting gains.

A careful way to put the agency point is this: developing countries have their own commercial interests, domestic coalitions, and industrial strategies. If the dominant reality were one-sided harm from Chinese exports, the expectation would be broad and sustained alignment among these countries against China in trade diplomacy, and a turn toward systematic decoupling. Instead, what often appears is something more pragmatic: selective defensiveness in specific sectors combined with continued participation in China-centered supply chains and continued efforts to bargain for better terms. That is consistent with countries weighing costs and benefits, not with them being passive casualties in someone else’s moral narrative.

A rebuttal does not need to deny that Chinese competition can create adjustment pains. It should insist on getting the mechanism right. Some of what looks like an export wave is export upgrading and a higher domestic value-added share, not simply “more volume.” Many developing countries’ imports from China are a feature of their own export growth model, not a sign of economic helplessness. And the way these countries act in policy, trade negotiations, and supply-chain strategy suggests that they do not see themselves as straightforward losers.

If the “Second China Shock” claim is that China’s exports are broadly and systematically damaging developing countries, the burden is to show, with careful value-added and sector-level evidence, that the harms dominate the gains across a wide range of economies, not just in select industries, and not just through gross trade numbers. Without that, the story risks becoming a Western political economy narrative projected outward, rather than an empirically grounded account of how developing countries are actually experiencing China’s rise.