China’s economy grew by 4.5% year on year in the third quarter of 2026, official data showed on Monday, as strong exports helped offset continuing weakness in domestic demand. The result brings Beijing closer to its annual growth target while intensifying concerns among trading partners, including the European Union, about rising Chinese exports and industrial competition.
The July-to-September figure exceeded expectations and improved on the 4.3% expansion recorded in the second quarter. That earlier result had marked China’s slowest quarterly growth in more than three years.
China’s growth target remains within reach
Chinese leaders have set a 2026 economic growth target of between 4.5% and 5%. The latest result places the economy at the lower edge of that range, although the annual outcome will depend on performance during the final quarter and the strength of domestic activity.
The International Monetary Fund recently reduced its forecast for China’s 2026 growth to 4.5%, matching the bottom of the government’s target. The official quarterly figure therefore provides some support for Beijing’s stated objectives, but it does not remove concerns about the uneven nature of the recovery.
Export performance has been one of the clearest sources of momentum. Chinese exports increased sharply during the year, while the country recorded a trade surplus of $938 billion in the first nine months. The surplus could exceed last year’s record of $1.2 trillion if current trends continue.
Exports support the economy as households remain cautious
Chinese manufacturers have increasingly looked beyond the United States as higher US tariffs have affected bilateral trade. Southeast Asia, Latin America and Europe have become important destinations for Chinese products, particularly in advanced manufacturing.
High-technology goods, including semiconductors, hybrid vehicles and electric vehicles, have contributed to export growth. Beijing’s efforts to strengthen domestic manufacturing capacity and reduce reliance on Western technology have created large production capabilities in sectors such as solar energy and automotive manufacturing.
However, production has expanded faster than domestic consumption in several industries. This has left Chinese companies relying more heavily on overseas markets, where surplus goods can be sold at competitive prices.
Analysts cited in the source material warned that the export-led model has not generated equivalent gains in employment and household income. They also pointed to the possibility that artificial intelligence could add to labour-market pressures in some sectors.
Domestic demand has been weakened further by the prolonged property downturn. Falling property values have reduced household wealth, while uncertainty has encouraged consumers to save rather than spend. That combination has made it harder for services and consumer activity to provide a stronger counterweight to manufacturing and exports.
Why the headline figure does not tell the whole story
Economists have cautioned that the official growth rate may not fully reflect conditions across China’s economy. Differences between industries, regions and households mean that strong national output can coexist with financial pressure for consumers and weaker performance in property-related sectors.
The central challenge for policymakers is therefore not only maintaining overall growth, but also improving the balance between production, exports and domestic consumption. A stronger household recovery would reduce dependence on overseas demand, but achieving it could prove difficult while the property market remains under pressure.
EU trade concerns grow as Chinese exports rise
The figures have direct relevance for European economic policy. The European Union runs a substantial trade deficit with China, and Chinese exports to the bloc increased by 16% in the first nine months of the year, according to the source material.
European policymakers have raised concerns that low-priced Chinese imports could put pressure on manufacturers in EU member states. The debate is particularly sensitive in sectors such as vehicles, clean technology and advanced industrial goods, where European companies are competing with heavily supported Chinese producers.
Some EU countries are seeking additional restrictions, even after an agreement reached earlier in October to roughly halve Chinese hybrid vehicle imports over the coming years. That arrangement is intended to manage competition without resorting to a broader increase in tariffs, but its longer-term effect remains uncertain.
The dispute reflects a wider issue in EU-China relations: Europe wants access to the Chinese market and stable commercial ties, while also seeking fair competition and protection for strategic industries. Any further trade measures would need to be considered within the EU’s trade and competition framework.
Beijing rejects claims over the yuan and trade surplus
Some policymakers and analysts have argued that the value of the yuan against the US dollar and euro has contributed to China’s export surplus. China’s central bank has rejected that interpretation.
Beijing has also said it does not pursue a large trade surplus as an objective. Pan Gongsheng, the governor of the People’s Bank of China, said last Friday that surplus and deficit countries should cooperate and that China remained committed to expanding domestic demand.
Those statements point to the difficult balance facing Chinese officials. Supporting exports can protect industrial activity and jobs, but continued export growth risks increasing trade friction with the EU, the United States and other partners.
What happens next for Europe and China?
The latest data are likely to keep trade rebalancing high on the agenda in Brussels and national capitals. EU governments will be watching whether Chinese exports continue to accelerate, how the hybrid vehicle arrangement operates and whether Beijing takes concrete steps to strengthen domestic consumption.
For European businesses, the key issues include market access, import competition and the future of trade measures affecting vehicles and other strategic products. For China, sustaining growth will require more than strong overseas sales if household confidence and property investment remain weak.
China’s 4.5% quarterly expansion shows that exports are still providing significant support. But the broader economic test is whether Beijing can turn that output into stronger domestic demand while reducing the trade tensions that its manufacturing success has created.
