China’s economy steadies as surging exports lift Q3 growth above forecasts - Mercator Institute for China Studies (MERICS)

China’s economy regained some momentum in the third quarter. GDP grew 4.5%, up from 4.3% in the second quarter. The result also exceeded expectations. This matters because Q2 had been the weakest quarterly growth in almost four years, raising concerns about China’s economic direction.

The improvement was not broad-based. Advanced manufacturing and exports supplied much of the strength. Industrial value added grew 5.5% in September, while high-tech manufacturing increased 15.3%. Exports climbed 36.3% in September, helping offset weak consumption, falling investment, and a troubled property sector.

Growth over the first three quarters reached 4.6%. That makes China likely to meet its 2026 annual target of 4.5–5%. Because growth remains resilient, Beijing is expected to continue selective support rather than launch a large, economy-wide stimulus program.

China’s exports jumped 36.3% in value terms in September. Imports also rose strongly, increasing 31%. Because exports grew faster than imports, the gap between what China sold abroad and bought from abroad widened sharply. This helped exports become the economy’s most powerful source of momentum.

The result was a trade surplus of USD 133.5 billion in September. A surplus means export revenues exceeded import spending by that amount during the month. The surplus was the highest since January 2025 and the second-highest monthly figure ever recorded, according to the article.

This strength is supporting overall growth while domestic demand remains weak. It is also creating tension for China’s trading partners, which are facing a large flow of Chinese goods into their home markets. The pattern reinforces concerns that China’s economy is becoming increasingly dependent on exports.

A trade surplus occurs when the value of a country’s exports exceeds the value of its imports over a given period. It shows that foreign buyers are purchasing more from the country than the country is purchasing from abroad. China’s surplus matters because exports are currently compensating for weak household consumption and investment at home.

The mechanism is straightforward. If domestic shoppers and businesses buy fewer goods, producers may seek customers overseas. In September, China’s exports rose 36.3%, while imports increased 31%. The faster export growth widened the difference and produced a USD 133.5 billion surplus.

This can support GDP in the short term, but it also reveals an imbalance. Growth becomes reliant on foreign demand instead of spreading across households, property, and business investment. China’s trading partners are therefore confronting a large influx of Chinese goods in their domestic markets.

China’s automotive industry captures the economy’s central contradiction. Production and industrial activity remain relatively strong, but Chinese consumers are buying fewer passenger vehicles. This matters because the industry can keep factories active through exports even when the domestic market is weakening.

In September, automotive industrial value added rose 6.7% year-on-year. Yet passenger-vehicle output fell 9.4% to 2.6 million cars, while domestic retail sales dropped 28.1% to 1.6 million. Passenger-vehicle exports grew 64.2% year-on-year. More than 900,000 passenger vehicles were exported in a month three times this year.

The difference suggests that many cars not absorbed by Chinese buyers are being sold abroad. Exports preserve production and support growth, but they do not solve weak household demand. If domestic sales remain depressed, China’s growth will continue relying heavily on overseas markets.

When large amounts of Chinese goods enter other countries’ markets, China’s trading partners must absorb a surge in imported products. The article describes this as fallout from an onslaught of Chinese goods. It matters because China’s export strength is partly linked to weak demand inside China itself.

The automotive industry provides a clear example. Chinese passenger-vehicle retail sales fell 28.1% in September, but exports grew 64.2% year-on-year. More than 900,000 passenger vehicles were exported in a month three times this year. Products that are not being purchased at home are therefore finding buyers abroad.

The immediate result is stronger Chinese exports and a larger trade surplus. For trading partners, however, domestic markets face a much heavier flow of Chinese goods. The article does not detail specific policy responses, but the growing imbalance increases pressure on those countries as China’s economy relies more on foreign demand.

Beijing is providing selective support because the economy is weak in important areas but not weak enough to demand a major rescue. GDP growth improved to 4.5% in the third quarter, and growth for the first three quarters reached 4.6%. The 2026 target of 4.5–5% is therefore likely to be achieved.

Several indicators support restraint. High-tech manufacturing grew 15.3%, specialized equipment manufacturing rose 12.1%, and exports climbed 36.3% in September. Job creation reached 10.5 million between January and September, roughly matching 2025. Youth unemployment peaked at the same 18.9% level as last year, rather than worsening materially.

Beijing is still confronting falling investment, weak consumption, and a property-sector decline of 20.6%. But exports continue to provide momentum, and consumer prices rose only 0.9%. The leadership will probably continue targeted support while avoiding broad fiscal stimulus.

Household consumption and business investment spread growth across the domestic economy. When families spend, companies receive sustained local demand. When businesses invest, they expand productive capacity and create activity beyond export industries. Relying mainly on exports leaves growth exposed to overseas demand and concentrates strength in a few sectors.

China’s figures show the imbalance clearly. Retail sales grew only 1.1% in September. Fixed-asset investment fell 7.2% from January to September, while real-estate investment dropped 20.6%. By contrast, exports surged 36.3% in September. A household-goods trade-in scheme lifted communication-equipment sales 31.1%, but the article says such gains are often short-lived.

Exports are keeping the economy moving, but they cannot fully replace domestic demand. Weak consumption and investment narrow the sources of growth. Unless confidence and spending improve, China may continue to depend on foreign buyers while facing greater pressure from trading partners.