China's Q3 Economic Growth Hits 4.5% Amid Robust Exports and Domestic Weakness

China said on Monday that its economy grew 4.5% year-on-year in July-September, fueled by robust exports. The better-than-expected official figure accelerated from 4.3% in April-June, which was the slowest expansion in more than three years. China's leaders have set an annual growth target of 4.5%-5%, compared with last year's 5% expansion. The International Monetary Fund earlier this month trimmed its forecast for China's 2026 growth to 4.5%, the lower end of Beijing's target.

China's domestic demand has weakened because a yearslong property downturn has squeezed household wealth and increased savings. Max Zenglein, Asia Pacific senior economist at The Conference Board, said the headline growth figure increasingly poorly reflects the broader economy because the figure masks widening disparities across industries, regions and households. Zenglein said Beijing faces difficult trade-offs and may find domestic imbalances more challenging to manage than external pressures.

China's exports grew 36% last month. China recorded a $938 billion trade surplus between January and September. China is on track to surpass last year's record $1.2 trillion global trade surplus. Elevated U.S. tariffs have hurt some U.S.-China bilateral trade and forced China to seek other markets, including Southeast Asia, Latin America and Europe. High-tech products such as semiconductors, alongside autos including hybrid and electric vehicles, are driving export growth this year.

China has built massive domestic manufacturing capacity in heavily government-subsidized industries such as solar and electric vehicles while pursuing self-sufficiency against Western export controls and trade uncertainty. Manufacturers rapidly increased output during weak domestic consumption, causing many goods to be shipped overseas at competitive prices. Ecaterina Bigos, senior market strategist at BNP Paribas Asset Management, said technology-driven, export-reliant growth has produced limited job creation and broad income gains while AI-driven labor displacement risks grow.

Many trading partners fear that surging imports of lower-cost manufactured goods from China increasingly threaten domestic industries and economies. Cornell University economics and trade policy professor Eswar Prasad said reliance on foreign demand to support the world's second-largest economy is untenable and unsustainable. Prasad said China's persistent, large trade surpluses have made China a drag on world growth rather than a source of growth for other economies.

The 27-nation European Union runs a trade deficit with China exceeding $1.1 billion a day and is seeking to reduce the imbalance. China's exports to the EU rose 16% in the first nine months of the year. The EU reached an agreement with China this month to roughly halve Chinese hybrid vehicle imports over the next few years. EU countries are considering further restrictions on China.

Gary Ng, senior economist for Asia Pacific at French bank Natixis, said China can cooperate on disputes and wants to maintain market access. Ng said an agreement such as the EU hybrid vehicle deal likely allows China to sell more China-made products in EU economies over time while avoiding broad tariff increases. However, Lynn Song, chief economist for Greater China at Dutch bank ING, said trade imbalances will be difficult to resolve quickly even with China-EU agreements.

Policymakers argue that an undervalued yuan against the dollar and euro has contributed to China's growing trade surplus, a claim China's central bank has dismissed. Bigos forecast continued resistance, rising protectionism and persistent global pressure to protect industries and jobs, notably in high-value sectors. Beijing has insisted that China does not seek a large trade surplus. China's central bank governor Pan Gongsheng said on Friday that countries with trade deficits and countries with trade surpluses should work together. Pan said China, as a responsible country, has been committed to expanding domestic demand.