China’s economy grows 4.5% in third quarter
China reported on Monday that its economy expanded by 4.5% in the July-September quarter compared to the same period the previous year, driven by robust exports, moving closer to achieving its official annual growth target as the year draws to a close, reports BritPanorama.
This growth marked an acceleration from the 4.3% year-on-year increase recorded in the April-June quarter, which had been the slowest expansion in more than three years. Chinese leaders have set a growth target of 4.5% to 5% for the year, a decrease from last year’s 5% expansion. Earlier this month, the International Monetary Fund (IMF) revised its forecast for China’s 2026 economic growth down to 4.5%, aligning with the lower end of Beijing’s target.
Max Zenglein, Asia-Pacific senior economist at the Conference Board, commented that the headline growth figure is becoming “an increasingly poor indicator of how the broader economy is performing.” He noted that it obscures “widening disparities across industries, regions and households.” The Chinese government is facing challenging trade-offs, with managing domestic imbalances potentially presenting greater difficulties than external pressures.
Domestic demand in China has weakened, largely due to prolonged downturns in the property market, which have eroded household wealth and increased savings rates. Nonetheless, strong exports remain a highlight; China is set to exceed last year’s record $1.2 trillion trade surplus, following a 36% increase in exports last month and accumulating a $938 billion surplus from January to September.
Impact from elevated U.S. tariffs has disrupted some U.S.-China bilateral trade, compelling China to diversify its trade relationships towards Southeast Asia, Latin America, and Europe. Notably, high-tech exports, including semiconductors and automobiles, particularly hybrid and electric vehicles, are driving export growth this year.
As China strives for self-sufficiency amid Western export controls and trade uncertainties, it has bolstered domestic manufacturing capacities across various sectors such as solar power and electric vehicles, supported by substantial government subsidies. However, this rapid scale-up has come at a time of subdued domestic consumption, resulting in competitive pricing for many goods destined for foreign markets.
According to Ecaterina Bigos, senior market strategist at BNP Paribas Asset Management, the export-dependent growth model has produced limited job creation and broad income gains. The risks of AI-driven labor displacement are also increasing, raising concerns among China’s trade partners about the threat their domestic industries face from a surge in lower-cost Chinese imports.
Eswar Prasad, a professor of economics and trade policy at Cornell University, remarked on the unsustainability of relying on foreign demand to propel growth. He argued that China’s persistent trade surpluses have turned it into “a drag on world growth rather than an engine that pulls the rest of the world along.”
The European Union (E.U.) is particularly keen to reduce its trade deficit with China, which exceeds $1.1 billion daily. In the first nine months of the year, Chinese exports to the E.U. rose by 16%. In light of this, E.U. countries are considering more restrictions on Chinese goods after agreeing to reduce the number of Chinese hybrid vehicle imports in the forthcoming years.
China’s strategy appears focused on maintaining market access while resolving disputes with partner countries, as indicated by recent agreements with the E.U. on hybrid cars, which may allow China to continue supplying its products without facing broader tariff increases.
However, Lynn Song, chief economist for Greater China at ING, cautioned that even with these agreements, achieving balance in trade will be a lengthy process. Concerns persist regarding an undervalued yuan, which many view as contributing to China’s trade surplus, despite the Chinese central bank’s dismissal of these claims.
Experts anticipate that resistance and rising protectionism will prevail as economies globally seek to protect their industries and jobs, especially in high-value sectors. Beijing maintains that it does not actively seek a substantial trade surplus, as emphasized by China’s central bank governor Pan Gongsheng, who stated that nations with trade deficits and surpluses should collaborate, and reaffirmed China’s commitment to expanding domestic demand.
