China’s economy grew by 4.5% in the July-to-September quarter, official figures showed, as strong exports helped the country move closer to its annual growth target despite weak domestic demand and mounting pressure from trading partners.
The year-on-year expansion accelerated from 4.3% in the second quarter, when growth reached its slowest pace in more than three years. Beijing is targeting annual growth of between 4.5% and 5%, compared with 5% last year.
The International Monetary Fund earlier this month reduced its forecast for China’s economic growth in 2026 to 4.5%, at the lower end of the government’s target.
Exports drive China’s economic growth
Exports have been one of the few bright spots for the world’s second-largest economy. Chinese exports rose by 36% last month, while the country recorded a trade surplus of $938 billion between January and September.
That puts China on course to exceed last year’s record global trade surplus of $1.2 trillion, although the headline growth figure has concealed significant differences between industries, regions and households.
Max Zenglein, Asia Pacific senior economist at The Conference Board, said the official growth figure was becoming “an increasingly poor indicator of how the broader economy is performing”. He said managing domestic imbalances could prove more difficult for Beijing than dealing with external pressures.
Domestic demand has been weakened by a prolonged downturn in the property market, which has reduced household wealth and encouraged higher levels of saving.
Higher US tariffs have affected some bilateral trade between the US and China, prompting Chinese companies to seek markets elsewhere, including in south-east Asia, Latin America and Europe. High-tech products such as semiconductors, as well as cars including hybrid and electric vehicles, have helped drive exports this year.
China has also expanded manufacturing capacity in sectors including solar power and electric vehicles as it pursues greater self-sufficiency and seeks to protect itself from Western export controls and trade uncertainty.
With domestic consumption weaker, some of that output has been directed towards overseas markets at competitive prices. Ecaterina Bigos, senior market strategist at BNP Paribas Asset Management, said an export-dependent, technology-led model had delivered limited job creation and broad income gains, while the risk of job displacement linked to artificial intelligence continued to grow.
European Union seeks to reduce trade imbalance
China’s rising exports have increased concern among trading partners that lower-cost manufactured imports could threaten domestic industries. Eswar Prasad, a professor of economics and trade policy at Cornell University, said it was “untenable and unsustainable for the world’s second largest economy to rely on foreign demand to prop up its own growth”.
He said China’s persistent and large trade surpluses had made it “a drag on world growth rather than an engine that pulls the rest of the world along”.
The European Union is seeking to reduce its trade imbalance with China, running a deficit of more than $1.1 billion a day. Chinese exports to the EU rose by 16% in the first nine months of the year.
The EU is considering further restrictions after reaching an agreement with Beijing this month to roughly halve the number of Chinese hybrid vehicles imported over the next few years. Gary Ng, a senior economist for Asia Pacific at Natixis, said agreements such as that could allow China to maintain market access while avoiding a broad tariff increase.
However, Lynn Song, chief economist for Greater China at ING, said trade imbalances would be “difficult to resolve quickly”, even with agreements between China and the EU.
Some policymakers have argued that an undervalued yuan against the dollar and the euro has contributed to China’s growing surplus, a claim rejected by the country’s central bank.
“We are likely to see continued resistance, rising protectionism, and persistent pressure from economies globally to protect their industries, and jobs, notably in high value sectors,” Ms Bigos said.
Beijing has insisted that it does not seek a large trade surplus. Pan Gongsheng, China’s central bank governor, said on Friday that countries with trade deficits and surpluses should work together, adding that China was committed to expanding domestic demand.
