China's Economy Grows 4.5% in Q3 Driven by Strong Exports Amidst Domestic Weakness

China's economy expanded by 4.5% in the July-September quarter compared to a year earlier, primarily propelled by strong export performance. This growth rate accelerates from the 4.3% recorded in the preceding quarter and brings the nation closer to achieving its official annual growth target of 4.5%-5%.

Despite the headline figures, experts note that the official growth rate may not fully reflect the broader economic landscape. Max Zenglein, Asia Pacific senior economist at The Conference Board, stated that the figure is becoming an "increasingly poor indicator" due to widening disparities across industries, regions, and households. China faces significant trade-offs in managing domestic imbalances, which could prove more challenging than external pressures.

Domestic demand has remained weak, largely due to a prolonged downturn in the property market that has impacted household wealth and increased savings. However, exports have emerged as a key bright spot, positioning China to potentially surpass its record $1.2 trillion trade surplus from the previous year. Between January and September, China logged a $938 billion surplus, with exports growing by 36% in the last month alone.

Elevated U.S. tariffs have affected bilateral trade, prompting China to seek markets in Southeast Asia, Latin America, and Europe. Growth in exports is being driven by high-tech sectors such as semiconductors and by automotive sales, including hybrid and electric vehicles. These sectors, along with solar energy, have seen massive domestic manufacturing capacity built up as China pursues self-sufficiency amid trade uncertainties and Western export controls. However, this rapid expansion in output, coupled with weakened domestic consumption, has led to many goods being exported at competitive prices.

This export-reliant, tech-driven growth model has shown limited job creation and broad income gains. Concerns persist about potential labor displacements driven by artificial intelligence, according to Ecaterina Bigos, senior market strategist at BNP Paribas Asset Management. Many trading partners fear their domestic industries are threatened by the influx of lower-cost Chinese manufactured imports.

Eswar Prasad, a professor of economics and trade policy at Cornell University, described the situation as "untenable and unsustainable" for the world's second-largest economy to rely on foreign demand. He suggested that China's persistent large trade surpluses are making it a "drag on world growth rather than an engine." The European Union, which runs a daily trade deficit of over $1.1 billion with China, is among those seeking to reduce its trade imbalance. While Chinese exports to the EU increased by 16% in the first nine months of the year, the bloc has been exploring further curbs, including a recent agreement to halve Chinese hybrid vehicle imports over the next few years.

Analysts suggest that while China aims to maintain market access and resolve disputes, fundamental trade imbalances will be difficult to resolve quickly. Some argue that an undervalued yuan contributes to the surplus, though China's central bank has dismissed these claims. Beijing maintains it does not seek large trade surpluses, with the central bank governor emphasizing cooperation between countries with trade deficits and surpluses, and China's commitment to expanding domestic demand.