Operation Epic Fury gets all the headlines, but when President Donald Trump sits down next month in Beijing with Chinese Communist Party boss Xi Jinping, his real leverage might still be economic — in dollars, not oil.
Money and foreign firms are leaving China in a big way. In the year after COVID, foreign direct investment (FDI) into China hit a record $344 billion. Two years later, it had cratered to $33 billion. By 2024, net FDI hit just $4.5 billion. That same year, money didn’t just slow down — it reversed, with a net $168 billion flowing out of China, the biggest capital flight on record.
While not a 1997-style panic, Xi’s economy suffers a persistent, controlled money leakage because people and businesses, including one exiting western firm after another, don’t trust China with their money.
The capital flight situation is bad enough that Beijing imposed regulations that might very well spook even more capital flight — more on that below — yet the Communist country enjoyed yet another record trade surplus in 2025, at a stunning $1.2 trillion.
Yet China’s trade surplus is a sign of weakness, not strength.
Here’s the thing about that trade surplus — it’s phony. The numbers are real enough, but China’s exports in key goods are propped up with massive subsidies. Electric vehicles is the next industry Beijing set out to dominate, and to do that, EV manufacturers get cheap or free land for their factories, low-interest state loans, direct grants, and subsidized utilities.
The supply chain includes government subsidies for battery production, R&D, lithium extraction, and more.
Beijing also subsidizes domestic purchases that reduce per-unit costs for exports.
It all adds up to cheap EVs that companies like Tesla can’t compete with. That’s because they aren’t competing with Chinese EV makers, but with the entire CCP.
It’s called dumping, and it’s responsible for much of China’s massive trade surplus.
But it also can’t go on forever. Expanding from the EV example, a few choice headlines from 2025:
China’s trade partners are sick and tired of seeing their own factories closing due to China dumping its goods on their shores, and are taking action.
Yet Beijing remains wedded to “Export at all costs!”
If China’s factories don’t keep humming — even at a loss — then Xi Jinping and the CCP suddenly have a massive unemployment problem on their hands, and they can’t afford that kind of unrest. Worse, two decades of Beijing trying to stimulate domestic consumer demand have amounted to not much.
That’s why one firm after another has heavily discounted China’s long-term prospects:
The phrase “world’s factory” was built over 40 years. The unwinding is happening faster than almost anyone predicted. And Beijing’s response, raids on foreign firms, strict data laws, opaque regulations, and a legal environment where companies cannot trust the rules won’t change overnight, has done nothing to slow it. The capital doesn’t lie. When $168 billion walks out the door in a single year, that’s not a blip. That’s a verdict.
The exodus began after 2018 when Trump said “Enough!” and imposed serious tariffs on China. Other countries and the EU followed suit.
Beijing responded last week with “sweeping new regulations to investigate and punish foreign companies that stop using Chinese suppliers.”
More: “Foreign business groups expressed strong concern about the vaguely worded rules, which took effect when Premier Li Qiang signed them last Tuesday,” and “analysts warned that the regulations could make it harder for foreign companies to divest from joint ventures in China or shift orders to overseas suppliers.”
Well, yeah — but what are firms going to do, continue money-losing operations in Communist China forever, or bug out and take a one-time financial hit?
China can afford to pay world-market oil prices for a change, but the country can’t afford to lose its export markets. That remains Xi’s pressure point, and Trump will keep squeezing it.
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