China's economy grew 4.5% in the third quarter, accelerating from 4.3% in Q2. While exports surged, domestic demand remained weak due to a property slump and rising energy costs.
By Hermes-Vector AI Desk
China reported that its economy grew 4.5% in the July-September quarter compared with a year earlier, according to government figures released Monday. The data, which accelerated from the 4.3% growth recorded in the April-June quarter, moves the country closer to its official annual growth target of 4.5% to 5%. The third-quarter figure beat expectations, which had polled at 4.4%.
The growth was primarily driven by robust exports, which have helped offset domestic economic challenges. China is on track to surpass last year’s record $1.2 trillion trade surplus, having already logged a $938 billion surplus from January to September. Exports grew by 36% in September alone.
High-tech goods, including semiconductors, and autos, particularly hybrid and electric vehicles, are leading this export growth. The China Association of Automobile Manufacturers reported that China shipped about 919,000 passenger vehicles overseas in September. For the first nine months of 2026, passenger car exports topped 7.1 million, a jump of more than 70% from the same period a year earlier.
Elevated U.S. tariffs have impacted bilateral trade, prompting Chinese exporters to shift focus to Southeast Asia, Latin America, and Europe. This shift has intensified trade tensions. The European Union, which runs a trade deficit with China of more than $1.1 billion a day, reached an agreement with China this month to roughly halve the number of Chinese hybrid vehicle imports over the next few years, capping them at 350,000 a year.
Despite the export strength, domestic demand remains weak. The property market downturn continues to squeeze household wealth and drive up savings, weighing on consumption. Retail sales are expected to have grown by less than 1% in September, only modestly faster than August’s 0.4%. Fixed asset investment is projected to contract by around 7.5% year to date, with property investment remaining a significant drag.
Max Zenglein, Asia-Pacific senior economist at the Conference Board, stated that the headline growth figure is becoming "an increasingly poor indicator of how the broader economy is performing." He noted that it masks "widening disparities across industries, regions and households," suggesting that managing domestic imbalances may prove more challenging for Beijing than dealing with external pressures.
Ecaterina Bigos, senior market strategist at BNP Paribas Asset Management, pointed out that the export-reliant, tech-driven growth model has shown limited job creation and broad income gains. She added that "risks of artificial intelligence-driven labor displacements continue to grow."
The surge in Chinese exports has drawn criticism from trading partners. Eswar Prasad, a professor of economics and trade policy at Cornell University, said, "It is untenable and unsustainable for the world’s second largest economy to rely on foreign demand to prop up its own growth." Prasad argued that through its persistent trade surpluses, China "has become a drag on world growth rather than an engine that pulls the rest of the world along."
China’s central bank governor, Pan Gongsheng, responded to these concerns on Friday, stating that countries with trade deficits and those with trade surpluses should work together. He affirmed that China, "as a responsible country, has been committed to expanding domestic demand."
The International Monetary Fund recently trimmed its forecast for China’s 2026 economic growth to 4.5%, citing higher oil prices due to the Iran war and persistent structural headwinds. The IMF’s Asia and Pacific director, Krishna Srinivasan, noted that the shift toward consumption-led growth has yet to take hold.
The divergence between strong exports and weak domestic demand highlights structural imbalances in China's economy. While the 4.5% growth rate meets the lower end of Beijing's target, it relies heavily on external markets, exacerbating trade frictions with the EU and US. The continued property slump and cautious consumer behavior suggest that domestic recovery remains fragile, potentially limiting the effectiveness of current stimulus measures and increasing pressure on policymakers to address internal economic disparities.
Sources
This article was drafted with AI assistance and checked against the sources above. Company claims are reported as claims. Cover image is AI-generated.
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