China’s economic growth bounced off three-year lows in the third quarter, as roaring exports offset consumers’ tight grip on their wallets, though analysts warn the growing reliance on external drivers is deepening structural imbalances.
The 4.5% pace beat consensus forecasts and analysts expect Beijing to reach its 2026 target of 4.5%-5.0% without resorting to additional stimulus, helped by a strong start to the year and some recent modest fiscal and monetary support.
Monday’s data showed retail sales again lagging industrial output, while the property market was still in a downturn, having significantly eroded household wealth for the past five years.
Together with last week’s releases showing soft consumer inflation and exports soaring by more than a third, a picture emerges of an economy increasingly dominant in global markets but struggling to generate prosperity at home.
Weak domestic demand has pushed Zhang Chao’s motorbike headlights company to all but abandon selling in China to focus on export markets, where orders have doubled this year.
“It’s too competitive and there’s no profit,” Zhang, who manages Southeast Asia operations for his firm, said of China. “The barrier to entry is a bit lower overseas.”
Weak consumer demand has intensified price wars, forcing companies to slash costs, including on payroll.
Having lost her sales job in June, Laura Shi still road-tripped through China’s week-long national holidays in October, but slept in her car on most nights to save on hotels.
“The downside was that I couldn’t shower, and there was noise outside,” she said.
Exports mask weak domestic demand
China’s increasingly lopsided growth is prompting the rest of the world to react.
The European Union and China have agreed to limit hybrid car exports to the bloc, but Brussels is planning further curbs as data last week showed September’s trade surpluses with Germany and France each jumping more than 200% year-on-year.
“China’s export expansion is not without limits amid a more protectionist global trade environment,” Societe Generale economist Michelle Lam said in a note.
“Without a decisive policy shift toward supporting household incomes and consumption, China is likely to remain trapped in a prolonged period of low inflation and sub-par growth.”
The yuan CNY=CFXS firmed to its strongest level since July 2022 on Monday.
Export boom fuels economic growth
China is on track to top last year’s $1.2 trillion trade surplus despite rising global tensions.
Exports ranging from chicken meat and beauty products to electric cars and prefabricated homes have surged.
Some manufacturers that moved production abroad are coming back, as US tariffs on Chinese goods are now closer to those on rivals such as Vietnam.
“High-tech manufacturing, chip output, new energy vehicles, and export delivery values reflect a competitive industrial upgrading that is real and accelerating,” said ITC Markets analyst Andy Ji.
“However, the growth composition remains deeply unbalanced… Growth is export- and state-led. Domestic demand is not yet self-sustaining, and the property sector shows no floor.”
Industrial output rose 5.5% in September.
Statistics bureau official Mao Shengyong said the 4.6% growth in the first nine months of the year was “hard won”. High-end manufacturing, “the digital economy” and “modern services” contributed more than 40% of the growth over the period.
Even so, Beijing has rolled out fresh support measures, underscoring concerns over lingering weakness beyond the factory sector.
Measures since late September include cheaper credit for infrastructure and tech, modest mortgage subsidies, and more funds for local governments, whose tight finances contributed to a 7.2% fall in fixed-asset investment in January-September.
Economists say the measures are enough to dispel fears of missing the growth target, but remain tilted to the supply side.
Consumers struggle as job market weakens
On the demand side of the ledger, October’s holiday saw average spending per trip fall to four-year lows, while social media flare-ups over gruelling work schedules, low pay and weak labour protections are becoming more frequent.
Retail sales were up 1.1% in September, marking the quickest growth in six months, though off a low base.
In the eastern city of Ningbo, a restaurant owner surnamed Dai said many diners now bring their own wine rather than ordering from the menu.
“Everyone is cutting jobs these days,” Dai said. “Sometimes I wonder whether I should let one or two staff members go and do more work myself.”
Unemployment inched lower to 5.2% in September, but economists say the figures are flattered by a growing gig economy. Anyone working even one hour a week is considered employed.
In Hangzhou, 26-year-old accountant Carol Huang is angry that her employer almost halved her bonus. But she says similar jobs in the city offer 3,000-6,000 yuan ($449-$897) per month, much less than she earns, so she is staying put.
“What on earth happened to the job market?” Huang said.