China's increasing reliance on foreign demand is a critical weakness that was concealed by the country's stronger-than-expected March-quarter growth. The reason: It raises the risk of a more severe economic shock as trade tensions rise.

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Net exports accounted for over 40 per cent of the 5.4 per cent increase in March-quarter GDP, the largest percentage for this period in over a decade. That's also up from last year, when trade accounted for almost a third of overall growth.

The latest data is also up over the previous year, when trade contributed about one-third of total growth. There has never been a riskier moment for such reliance on foreign demand.

Is US winning the 'Isolate China' game?

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The export engine that has been powering China's growth might potentially come to a standstill as a result of the US increasing tariffs on Chinese goods. What is not helping is a general weakening of global demand as a result of President Trump's trade policies.

China has stepped up its trade battle with the US by warning other nations not to make arrangements with Washington that would harm Beijing's interests. This shows how others could end themselves caught in the midst of the dispute.

The Ministry of Commerce said Beijing "Resolutely opposes any party reaching a deal at the expense of China's interests." That comes as the US is tightening its noose so that China does not circumvent its tariffs by using allies to sell its goods.

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Separately, China's shadow banking crisis shows that the wealth wipeout is deepening amid a slowing domestic demand. Even though it's been almost a year since a major Chinese trust company went under, the 3.7 trillion-dollar sector is showing no signs of revival.

According to a Bloomberg report, state-appointed custodians have recently concluded that Zhongrong International Trust is insolvent. They have submitted a winding-up proposal to regulators.

The company had approximately 108 billion dollars in assets in 2022 when the government became involved due to significant losses on real estate and other investments. The evaluation shows that a significant part of China's shadow banking sector has been hurting for a while. It also confirms that Beijing isn't prepared to help out wealthy investors.

(With inputs from the agencies)