China's Economy Grows 4.5% in Third Quarter Driven by Exports Amid Domestic Weakness

The Chinese government has set an economic growth target of 4.5% to 5% for the year, down from last year’s target of 5%. Earlier this month, the International Monetary Fund revised its forecast for China's economic growth in 2026 to 4.5%, aligning with the lower end of Beijing’s goal.

Dave Chia, an economist at Moody’s Analytics, noted that while trade saw significant growth, domestic demand remains weak. Exports are expected to continue their upward trend, although global trade barriers pose ongoing risks.

China's domestic consumption has been impacted by a prolonged downturn in the property market. Max Zenglein, senior economist at The Conference Board, commented that the official growth figure does not accurately reflect the broader economic landscape, as it obscures disparities across industries, regions, and households. He stressed that managing these internal imbalances may be more difficult than handling external pressures.

On Monday, Mao Shengyong, deputy head of China’s National Bureau of Statistics, highlighted the challenges ahead, pointing to a complex international environment and persistent issues with domestic demand that require further consolidation for economic stability.

Exports have become a significant driver, with China on track to exceed last year's record trade surplus of $1.2 trillion. Exports surged by 36% last month, contributing to a $938 billion surplus from January to September.

The impact of elevated U.S. tariffs has prompted China to explore markets in Southeast Asia, Latin America, and Europe. Key areas of export growth include high-tech items such as semiconductors and hybrid and electric vehicles. In response to Western export controls and trade uncertainties, China has ramped up domestic manufacturing capacities, notably in solar and electric vehicle sectors, often backed by government subsidies. Despite this, many goods are being exported at competitive prices due to weakened domestic consumption.

Ecaterina Bigos, senior market strategist at BNP Paribas Asset Management, pointed out that the tech-driven export model has not produced significant job creation or broad income gains, while risks associated with artificial intelligence displacement continue to rise. Eswar Prasad, a professor at Cornell University, remarked that it is unsustainable for China, the world’s second-largest economy, to rely heavily on foreign demand for growth. He argued that China's persistent trade surpluses have become a drag on global growth.

The European Union, which faces a trade deficit with China exceeding $1.1 billion daily, is also eager to address this imbalance. Chinese exports to the EU rose by 16% in the first nine months of the year. This month, the EU and China reached an agreement to reduce the number of imported Chinese hybrid vehicles by approximately half in the coming years.

Gary Ng, a senior economist for Asia Pacific at Natixis, noted that while China can manage disputes with trading partners and maintain market access, resolving trade imbalances quickly remains a challenge. Lynn Song, chief economist for Greater China at ING, added that factors such as an undervalued yuan have contributed to China's growing trade surplus despite dismissals from the central bank regarding these claims. Bigos further cautioned that rising protectionism and pressure from economies to safeguard their industries are likely to persist.