China’s economy gains pace on exports as domestic demand falters

China's economy expanded by 4.5% in the July-September quarter compared with the same period a year earlier, supported by strong exports, official data showed on Monday. The growth brings Beijing closer to achieving its annual economic target as the year draws to a close, even as trading partners intensify efforts to address their trade imbalances with the world's second-largest economy.The latest growth figure exceeded expectations and marked an improvement from the 4.3% expansion recorded in the April-June quarter, which was China's slowest pace of growth in more than three years, reported by news agency AP.Chinese leaders have set a full-year growth target of 4.5%-5% for 2026, lower than the 5% expansion achieved last year. Earlier this month, the International Monetary Fund lowered its forecast for China's economic growth in 2026 to 4.5%, placing its projection at the bottom of Beijing's target range.Strong exports support growth as domestic demand remains weakThe headline growth figure is becoming “an increasingly poor indicator of how the broader economy is performing”, said Max Zenglein, asia pacific senior economist at the conference board.According to Zenglein, the overall figure conceals widening differences across industries, regions and households. He added that Beijing faces difficult policy choices, with correcting domestic economic imbalances potentially proving more challenging than managing external pressures.China's domestic demand has weakened amid a prolonged property market downturn that has reduced household wealth and encouraged people to save more rather than spend.Exports, however, remain one of the economy's key sources of strength. China is on course to exceed last year's record global trade surplus of $1.2 trillion after exports rose 36% last month. Its trade surplus had already reached $938 billion between January and September.Higher US tariffs have disrupted some bilateral trade between Washington and Beijing, prompting Chinese exporters to seek alternative markets in Southeast Asia, latin America and Europe. High-tech products, including semiconductors, as well as automobiles, particularly hybrid and electric vehicles, have helped drive export growth this year.As China seeks greater self-reliance to reduce its vulnerability to western export controls and trade uncertainty, it has expanded manufacturing capacity across sectors such as solar energy and electric vehicles. These industries have also received substantial government subsidies.However, production capacity expanded rapidly while domestic consumption remained subdued, leaving manufacturers increasingly dependent on overseas markets to sell their goods at competitive prices.Ecaterina Bigos, senior market strategist at BNP paribas asset management, said China's export-led, technology-driven growth model had generated limited employment and broad-based income gains. She also warned that the risk of artificial intelligence displacing workers was increasing.European Union presses China to rebalance tradeChina's growing exports of relatively inexpensive manufactured goods have raised concerns among trading partners about the pressure on their domestic industries and economies.Eswar Prasad, a professor of economics and trade policy at Cornell University, said it was unsustainable for the world's second-largest economy to depend on foreign demand to support its growth.He argued that China's persistent and substantial trade surpluses had become a drag on global growth rather than helping drive expansion in other economies.The European Union is among the trading partners seeking to narrow the imbalance. The 27-member bloc runs a trade deficit with China exceeding $1.1 billion a day, while Chinese exports to the EU increased 16% during the first nine months of the year.European countries are considering further restrictions on Chinese products after the EU and China reached an agreement this month aimed at roughly halving the number of Chinese hybrid vehicle imports over the next few years.Gary Ng, a senior Asia Pacific economist at French bank Natixis, said China wanted to maintain access to overseas markets and could work with other countries to resolve trade disputes. An agreement on hybrid vehicles, for instance, could allow Chinese manufacturers to continue expanding sales in Europe over the longer term while avoiding a broader increase in tariffs.Nevertheless, Lynn Song, chief economist for greater China at Dutch bank ING, cautioned that trade imbalances would be difficult to correct quickly, even if agreements were reached.Some policymakers have also argued that the yuan's undervaluation against the US dollar and the euro has contributed to China's growing trade surplus. China's central bank has rejected these claims.Bigos said economies around the world were likely to maintain resistance to Chinese exports, with protectionist measures and pressure to safeguard domestic industries and employment expected to persist, particularly in high-value sectors.Beijing has maintained that it does not seek to generate a large trade surplus. On Friday, People's bank of China governor Pan Gongsheng said countries running trade deficits and those recording surpluses should work together. He added that China, as a responsible country, remained committed to expanding domestic demand.You use AI every day. Now get your AI Quotient. Take the AIQ test.