China's economy expanded at a faster pace in the third quarter, growing 4.5 per cent from a year earlier, as surging exports of technological goods outweighed a deepening property slump and sluggish consumer spending. The figure, which beat the 4.4 per cent average forecast from a Reuters poll of economists, marks an improvement from the 4.3 per cent recorded in the second quarter, the weakest reading in three years.
The third-quarter result brings average growth for the first nine months of the year to 4.6 per cent, near the lower end of Beijing's official target range of 4.5 to 5 per cent.
The data underscores an economy still leaning heavily on factories and overseas buyers while households and private investors hold back. Urban fixed asset investment deepened its decline, falling 7.2 per cent in the January-to-September period compared with a year earlier, slightly less than the 7.3 per cent drop expected by economists.
September figures offered a mixed picture. Retail sales eked out 1.1 per cent growth, exceeding analysts' forecast of 0.6 per cent, while industrial output grew 5.5 per cent, in line with expectations. The urban unemployment rate stood at 5.2 per cent in September.
Beijing has leaned heavily on exports for growth this year, but that engine faces growing pressure as investment in AI-related sectors cools and trade tensions with the European Union escalate. Chinese authorities have stepped up policy support, including a package of targeted rate cuts and mortgage subsidies in late September. In early October, the government allocated 550 billion yuan of unused debt quota to local governments.
Economists largely expect the People's Bank of China to hold benchmark lending rates unchanged through the rest of the year, leaving fiscal measures to do most of the heavy lifting.
Analysis
Why This Matters
- China is the world's second-largest economy, and its growth trajectory influences global trade flows, supply chains, and financial markets.
- The reliance on exports over domestic consumption highlights structural challenges that Beijing has struggled to resolve.
- The mix of strong industrial output and weak property and consumer sectors indicates a fragmented recovery that could face new headwinds from trade tensions.
Background
China's economy has been grappling with a prolonged property sector downturn, weak consumer confidence, and demographic headwinds. In response, Beijing has deployed stimulus measures throughout the year, including interest rate cuts and subsidies, to try to revive domestic demand and stabilize growth within its official target range. However, the economy has increasingly relied on the export sector, particularly advanced technology goods, to drive growth, a strategy now facing risks from cooling global AI investment and escalating trade disputes with the European Union.
Key Perspectives
Beijing: The Chinese government views the accelerating GDP and strong industrial output as signs that its stimulus measures are working, and will likely continue to prioritise fiscal support and targeted subsidies over aggressive monetary easing, relying on exports to bridge the gap while domestic demand recovers.
Economists and Markets: Many economists had forecast a weaker result, and the upside surprise may ease some immediate concerns about a hard landing. However, they note that the growth remains narrowly based on the export sector, while the deepening property slump and weak consumer spending leave the economy vulnerable to external shocks.
Trading Partners (EU and US): Strong Chinese exports of technology goods are a double-edged sword for trading partners. They benefit from cheaper inputs but face deepening trade tensions as domestic industries feel the pinch, fuelling protectionist responses and tariff disputes that could escalate further.
What to Watch
- The trajectory of the property sector and whether recent mortgage subsidies can slow its decline.
- The outcome of EU-China trade negotiations, which could further pressure the export-driven pillar of growth.
- Whether the People's Bank of China holds benchmark lending rates steady, signalling a continued reliance on fiscal policy.