China's economy grows 4.5% in July-September quarter as exports strengthen

International Monetary Fund trims forecast to target’s lower bound

China reported on Monday that its economy grew 4.5% from a year ago in the July-September quarter, with robust exports fueling the increase. The country’s economy expanded 4.6% in the first three quarters.

Chinese leaders set an annual growth target of 4.5%-5% for the year, down from last year’s 5% expansion. The latest quarterly result moved China closer to meeting that official goal. Earlier this month, the International Monetary Fund trimmed its forecast for China’s 2026 economic growth to 4.5%, the lower end of Beijing’s goal. That left the IMF’s projection aligned with the lower end of the government’s target range.

Economic growth accelerated from the 4.3% year-on-year rate recorded in the April-June quarter. That earlier pace was the slowest expansion in more than three years, making the latest quarter a marked pickup from the preceding period.

The release came as trading partners sought to balance their trade deficits with China. “Domestic demand was weak, while trade grew strongly,” said Dave Chia, an economist at Moody’s Analytics. Chia said exports will likely stay strong, but global trade barriers remain a risk.

China’s domestic demand has been weighed down by a yearslong downturn in its property market. Max Zenglein, Asia Pacific senior economist at The Conference Board, said the headline official growth figure was becoming “an increasingly poor indicator of how the broader economy is performing.” The figure masked “widening disparities across industries, regions, and households,” Zenglein said. Beijing faces difficult trade-offs, and managing domestic imbalances may prove more challenging than dealing with external pressures.

On Monday, Mao Shengyong, deputy head of China’s National Bureau of Statistics, cautioned about the economic challenges ahead. “The international environment is complex and volatile, the problem of insufficient domestic demand remains relatively prominent and the foundation for a stable, improving economy still needs consolidation,” he told a news conference.

With exports one of the few bright spots, China is on track to surpass last year’s record $1.2 trillion trade surplus globally after logging a 36% growth in exports last month and a $938 billion surplus between January and September. Elevated U.S. tariffs have hit some U.S.-China bilateral trade and forced China to look elsewhere, including Southeast Asia, Latin America and Europe. High-tech exports such as semiconductors and autos, including hybrid and electric vehicles, are among the areas driving export growth this year.

As China pursues self-sufficiency to help shield itself from Western export controls and trade uncertainties, it has built up massive domestic manufacturing capacities across industries such as solar and EVs, which the government heavily subsidizes. Output was scaled up rapidly while domestic consumption was weak, so many of the goods are shipped to overseas markets at competitive prices. Ecaterina Bigos, senior market strategist at BNP Paribas Asset Management, said the export-reliant, highly tech-driven model has shown limited job creation and broad income gains while risks of artificial intelligence-driven labor displacements continue to grow.

Many trade partners fear their domestic industries and economies face growing threats from lower-cost Chinese manufactured imports. Eswar Prasad, a professor of economics and trade policy at Cornell University, said, “It is untenable and unsustainable for the world’s second largest economy to rely on foreign demand to prop up its own growth.” Through its persistent and large trade surpluses, China “has become a drag on world growth rather than an engine that pulls the rest of the world along,” Prasad said.

The European Union is among those impatient to reduce its trade imbalance with China. The 27-nation bloc runs a trade deficit with China of more than $1.1 billion a day. For the first nine months of the year, Chinese exports to the EU were up 16%. EU countries are eyeing more curbs on China after the EU reached an agreement with China this month to roughly halve the number of Chinese hybrid vehicle imports over the next few years.

Gary Ng, a senior economist for Asia Pacific at French bank Natixis, said China can work with other countries on disputes and wants to keep its market access. With the deal with the EU on hybrid cars, China can likely still sell more made-by-China products in the longer run while avoiding a broad tariff hike. Even with agreements made between China and the EU, Lynn Song, chief economist for Greater China at Dutch bank ING, said “trade imbalances will be difficult to resolve quickly.”

Policymakers say an undervalued yuan, China’s currency, against the dollar and the euro has contributed to China’s growing trade surplus, even though China’s central bank has dismissed the claims. “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,” said Bigos.

China insists that it does not seek a large trade surplus. Central bank governor Pan Gongsheng said Friday that countries with trade deficits and those with trade surpluses should work together, and that China, as a responsible country, is committed to expanding domestic demand.

Taken together, the figures showed stronger quarterly growth driven by trade, even as domestic demand remained weak. China’s 4.6% expansion in the first three quarters moved the country closer to its annual target, while Chia’s warning identified global trade barriers as a risk to further export strength.