China's Q3 Growth Quickens to 4.5% on Export Strength as Domestic Demand Lags

China's economy grew 4.5% year-on-year in the July-September quarter, official data showed Monday, lifted by strong exports. The reading beat expectations and accelerated from 4.3% in April-June, the weakest pace in more than three years. Beijing targets annual growth of 4.5%-5%, down from last year's 5%. The International Monetary Fund this month cut its 2026 forecast for China to 4.5%, the bottom of that range. Domestic demand has sagged as a prolonged property slump erodes household wealth and pushes up savings. Max Zenglein, Asia-Pacific senior economist at The Conference Board, said the headline number increasingly misrepresents the wider economy, masking widening gaps across industries, regions and households. Beijing faces hard trade-offs, he said, and domestic imbalances may prove harder to manage than external pressure. Exports rose 36% last month. The trade surplus reached $938 billion in the first nine months of the year, putting China on course to beat last year's record $1.2 trillion. Higher U.S. tariffs have dented bilateral trade and pushed China toward Southeast Asia, Latin America and Europe. Semiconductors and other high-tech goods, along with autos including hybrids and electric vehicles, are powering export growth. Heavy government subsidies have built vast manufacturing capacity in solar, electric vehicles and other sectors, part of a push for self-sufficiency against Western export controls and trade uncertainty. With consumption weak, factories kept raising output and shipped goods abroad at competitive prices. Ecaterina Bigos, senior market strategist at BNP Paribas Asset Management, said technology-driven, export-reliant growth has generated limited job creation and broad income gains, even as AI-driven labor displacement risks grow. Many trading partners worry that a flood of cheaper Chinese manufactured goods threatens their own industries and economies. Eswar Prasad, a Cornell University professor of economics and trade policy, called reliance on foreign demand to support the world's second-largest economy untenable and unsustainable. China's persistent, large surpluses make it a drag on global growth rather than a source of growth for other economies, he said. The 27-nation European Union runs a trade deficit with China of more than $1.1 billion a day and wants to narrow it. Chinese exports to the EU climbed 16% in the first nine months of the year. This month the EU agreed with China to roughly halve Chinese hybrid vehicle imports over the next few years. EU countries are weighing further restrictions. Gary Ng, senior Asia-Pacific economist at France's Natixis, said China can cooperate on disputes and wants to keep market access. A deal like the EU hybrid vehicle accord would let China sell more of its goods into EU economies over time while heading off broad tariff increases. Lynn Song, chief economist for Greater China at Dutch bank ING, said trade imbalances will be hard to resolve quickly even with such agreements. Policymakers elsewhere argue an undervalued yuan against the dollar and euro has fed China's growing surplus, a claim the central bank rejects. Bigos expects continued resistance, rising protectionism and persistent global pressure to shield industries and jobs, especially in high-value sectors. Beijing insists it does not seek a large trade surplus. Central bank governor Pan Gongsheng said Friday that deficit and surplus countries should work together, adding that China, as a responsible country, is committed to expanding domestic demand.