China's 4.5% Growth Leans on Exports, Not Consumers

China's economy grew 4.5% year on year in the July-September quarter, beating expectations. The figure looks strong. But the details point to a more complicated story about a state-steered growth model that relies heavily on selling to the rest of the world.

Growth accelerated from 4.3% in April-June and topped the 4.41% consensus forecast of economists surveyed by Chinese financial data provider Wind. The National Bureau of Statistics put growth for the first three quarters at 4.6%. Beijing is targeting GDP growth of 4.5% to 5% this year, a softer goal than the “around 5 per cent” target of previous years. The second-quarter rate marked the slowest reported quarterly growth since the end of 2022, while the International Monetary Fund cut its 2026 forecast for China to 4.5%, the bottom of Beijing's range.

Exports Carry the Load

Domestic demand remains weak. A yearslong property downturn has squeezed household wealth and pushed up savings. Families aren't spending.

Exports are carrying the load. China is on track to exceed last year's record $1.2 trillion global trade surplus, after exports grew 36% last month and the country recorded a $938 billion surplus between January and September. High-tech goods, including semiconductors, and autos, including hybrid and electric vehicles, drove the gains.

Max Zenglein, Asia Pacific senior economist at The Conference Board, said the headline figure is “an increasingly poor indicator of how the broader economy is performing” because it hides “widening disparities across industries, regions, and households.” He said Beijing faces difficult trade-offs, and managing domestic imbalances might prove harder than handling external pressures.

Subsidies and Overcapacity

The government has expanded manufacturing capacity in industries such as solar power and electric vehicles, seeking self-sufficiency and protection from Western export controls and trade uncertainty. Those industries receive heavy subsidies. Production climbed quickly even as consumption at home sagged, sending the surplus overseas at competitive prices.

Ecaterina Bigos, senior market strategist at BNP Paribas Asset Management, said the export-reliant, highly tech-driven model has produced limited job creation and broad income gains, while risks from artificial intelligence-driven labor displacement keep growing.

Eswar Prasad, a professor of economics and trade policy at Cornell University, was blunt. “It is untenable and unsustainable for the world's second largest economy to rely on foreign demand to prop up its own growth,” he said. Through persistent and large trade surpluses, China “has become a drag on world growth rather than an engine that pulls the rest of the world along.”

Trading Partners Push Back

Other economies feel the effects. The 27-nation European Union runs a trade deficit with China of more than $1.1 billion a day, and Chinese exports to the bloc rose 16% in the first nine months of the year. This month, the EU and China agreed to roughly halve the number of Chinese hybrid vehicle imports over the next few years, but EU countries are weighing further restrictions.

Gary Ng, a senior economist for Asia Pacific at Natixis, said China wants to preserve market access and, under the hybrid-car deal, could keep selling more made-by-China products to EU economies over the longer term while avoiding a broad tariff increase. Elevated U.S. tariffs have affected some U.S.-China trade, prompting China to seek other markets in Southeast Asia, Latin America and Europe.

Lynn Song, chief economist for Greater China at ING, said, “Trade imbalances will be difficult to resolve quickly.” Policymakers have also argued that an undervalued yuan against the dollar and euro has contributed to the surplus, though China's central bank has rejected that claim. Bigos expects “continued resistance, rising protectionism, and persistent pressure from economies globally to protect their industries, and jobs, notably in high value sectors.”

Beijing says it doesn't seek a large trade surplus. On Friday, central bank governor Pan Gongsheng said countries with trade deficits and surpluses should work together, and that China, as a responsible country, has been committed to expanding domestic demand.

Why This Matters:

A growth number that beats forecasts looks like good news. The facts behind it are less comforting. Subsidized output is outpacing what Chinese households will buy, and the surplus is landing in foreign markets, where governments answer to workers and manufacturers who didn't compete on a level field. The EU's deficit of more than $1.1 billion a day shows how quickly pressure builds. For businesses and policymakers elsewhere, state-directed capacity can distort trade well beyond a country's borders, while the response—whether tariffs, quotas or negotiated caps—will bring its own costs. For China, the harder question is whether it can build real consumer demand at home or keep leaning on partners who are running out of patience.