China — Economic Growth Reaches 4.5% as Exports Counter Weak Domestic Demand
China’s economy gained momentum in the third quarter of 2026, with strong overseas demand helping counter continued weakness in domestic consumption. The uneven recovery, however, continues to raise questions about the country’s longer-term economic outlook.
Gross domestic product (GDP) grew 4.5% year-on-year, surpassing analysts’ forecast of 4.4%, according to data released on October 19. The latest result brings China closer to its annual growth target of 4.5% to 5.0%, potentially easing pressure on authorities to introduce additional large-scale stimulus measures.
The stronger performance follows a period of slower economic expansion, with exports and industrial activity serving as key growth drivers. Household spending remains subdued, however, as consumers exercise caution and the prolonged property market downturn continues to affect confidence and household wealth.
Industrial output increased 5.5% in September, while retail sales grew 1.1%, their fastest pace in six months. Despite the improvement, retail sales growth remained modest compared with industrial production and was measured against a relatively low base.
China’s economy expanded 4.6% during the January-September period. According to National Bureau of Statistics official Mao Shengyong, high-end manufacturing, digital industries and modern services contributed more than 40% of that growth.
Export-focused companies have gained from international demand for a broad range of goods, including electric vehicles, beauty products and prefabricated homes. Some manufacturers that had previously shifted production overseas are also returning, as U.S. tariffs on Chinese products have moved closer to the levels imposed on competitors such as Vietnam.
However, China’s export performance also presents challenges. The country’s trade surplus is on track to surpass the $1.2 trillion recorded last year, heightening concerns among trading partners about competitive pressures and the gap between industrial production and household consumption.
The European Union and China have reached an agreement to limit hybrid-car exports to the bloc, while European officials are weighing further restrictions. Meanwhile, China’s trade surpluses with Germany and France each rose by more than 200% year-on-year in September.
Since late September, Chinese authorities have rolled out several measures to support economic activity. These include lower-cost credit for infrastructure and technology, modest mortgage subsidies and additional funding for local governments. Despite these efforts, fixed-asset investment fell 7.2% during January-September.
Economists caution that supporting manufacturers alone may not be enough to secure a lasting recovery. Unless household incomes and consumer demand strengthen, China could remain heavily reliant on exports while facing an extended period of low inflation and economic growth below its potential.
The yuan climbed to its strongest level since July 2022 on Monday, reflecting the evolving economic outlook.
The latest data show how China’s industrial competitiveness can sustain economic growth even as domestic demand remains weak. The key challenge for the world’s second-largest economy is whether policymakers can translate that strength into more robust household spending.
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