China economy grows thanks to AI export boom but domestic slump remains a drag

China reported better-than-expected Q3 growth on Monday as robust exports of chips and electronics components on the back of a global artificial intelligence boom buoy the world's second-largest economy, despite sluggish demand at home.

China's National Bureau of Statistics said the economy grew 4.5% from a year earlier in the quarter ending September, a slight improvement from the more than three-year low of 4.3% last quarter and meeting the lower end of Beijing's 4.5-5% annual target .

This came as China has demonstrated its resilience in weathering the economic shocks of President Donald Trump's tariff offensive – now on pause after both sides agreed to a truce – as well as the US's war with Iran, which has dragged down growth in other nations.

For the first nine months of 2026, the economy expanded 4.6%.

The latest quarterly figure underscores the continuing challenge facing China's leadership: the deepening imbalance that has made the country increasingly reliant on manufacturing and overseas markets.

The phenomenon has come to be described by economists as a "two-speed economy": a thriving export engine powered by high-tech manufacturing, alongside weak investment and stagnant domestic consumption. A prolonged housing market downturn , now in its fifth year, remains a drag, as an estimated 70% of Chinese household wealth is tied up in property.

Property investment plunged 20.2% in the first three quarters of the year, indicating that the country's real estate woes persist.

Investment, a major pillar of the Chinese economy, was still weak, Monday's figures showed. Fixed-asset investment, which includes spending on infrastructure, factories and property, fell 7.2% in the first nine months of the year from the same period in 2025, declining at the same pace as the first eight months, according to data released on Monday.

However, retail sales, a key gauge of consumption, saw a remarkable turnaround, growing 1.1% in September, an improvement from the modest 0.4% increase in August and the fastest growth since March.

"The economy moved forward under pressure and developed in a newer and better direction, with an increase in positive changes in key indicators," said Mao Shengyong, vice-minister of the National Bureau of Statistics, at a Monday press conference.

"At the same time, we must also recognize that the international environment is complex and volatile, the problem of insufficient domestic demand remains relatively prominent, and the foundation for the steady and positive growth of the economy still needs to be consolidated," he added.