China Grew 4.5% Last Quarter, but Its Export Machine Risks Dragging the World

By Amara Osei

China's economy grew 4.5% in the July-September quarter from a year ago, beating expectations and putting Beijing within reach of its official annual growth target — while its record export run rattles trading partners from Brussels to Washington.

The figure, released Monday, accelerated from 4.3% growth in the April-June quarter, which had been the slowest expansion in more than three years. Chinese leaders have set a full-year target of 4.5%-5%, down from last year's 5% expansion. Earlier this month, the International Monetary Fund trimmed its 2026 forecast for China to 4.5%, just meeting the lower end of Beijing's goal.

What does the headline number hide?

Not much that's reassuring, according to analysts. The official 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.

That's because it masks "widening disparities across industries, regions, and households," Zenglein said. He argued Beijing faces difficult trade-offs, and managing domestic imbalances may prove harder than dealing with external pressures.

Domestic demand has weakened under a yearslong property downturn that has squeezed household wealth and pushed up savings. Exports are one of the few bright spots. China is on track to surpass last year's record $1.2 trillion global trade surplus after logging 36% export growth last month and a $938 billion surplus between January and September.

Elevated U.S. tariffs have hit bilateral trade and pushed China toward Southeast Asia, Latin America and Europe. Semiconductors and autos — including hybrid and electric vehicles — are among the drivers of this year's export growth.

China built massive, heavily subsidized manufacturing capacity in industries such as solar and EVs as it pursues self-sufficiency against Western export controls. But that output scaled up just as domestic consumption weakened, so much of it ships overseas at competitive prices.

That model carries costs at home. An export-reliant, tech-driven growth engine has shown limited job creation and broad income gains, while risks of AI-driven labor displacement keep growing, said Ecaterina Bigos, senior market strategist at BNP Paribas Asset Management.

Why is the EU pushing back?

Trade partners fear the surge of lower-cost Chinese imports threatens their domestic industries. "It is untenable and unsustainable for the world's second largest economy to rely on foreign demand to prop up its own growth," said Eswar Prasad, professor of economics and trade policy at Cornell University.

Through its persistent, large surpluses, China "has become a drag on world growth rather than an engine that pulls the rest of the world along," Prasad said.

The European Union runs a trade deficit with China of more than $1.1 billion a day. Chinese exports to the 27-nation bloc rose 16% in the first nine months of the year. The EU agreed with China this month to roughly halve the number of Chinese hybrid vehicle imports over the next few years, and more curbs are under discussion.

China can work with other countries on disputes and wants to keep its market access, said Gary Ng, senior economist for Asia Pacific at Natixis. The hybrid-car deal, for example, lets China likely keep selling more made-by-China products to EU economies over the longer run while avoiding a broad tariff hike, Ng said.

Even so, "trade imbalances will be difficult to resolve quickly," said Lynn Song, chief economist for Greater China at ING.

Policymakers also argue an undervalued yuan against the dollar and the euro has fed the surplus — a claim China's central bank rejects. "We are likely to see continued resistance, rising protectionism, and persistent pressure from economies globally to protect their industries, and jobs, notably in high value sectors," Bigos said.

Beijing insists it does not seek a large surplus. On Friday, central bank governor Pan Gongsheng said deficit and surplus countries should work together, and that China, as a responsible country, has been committed to expanding domestic demand.

With the hybrid-vehicle accord in place and the surplus still climbing, the pressure on Beijing to rebalance — and on its partners to respond — will only sharpen into 2026.