China's economy picks up pace in Q3 as exports power uneven recovery

BEIJING — China's economy grew faster than expected in the third quarter as a surge in exports and strong factory activity offset persistent weakness in domestic demand, easing pressure on policymakers to roll out more forceful stimulus measures.

The 4.5% growth rate, released by the National Bureau of Statistics (NBS) on Monday, beat the forecast for 4.4% growth in a Reuters poll, and improved from the more-than-three-year low of 4.3% in the April-to-June period.

The stronger headline growth was underpinned by a surge in exports, with China's trade surplus widening more than expected in September and keeping the country on track to surpass last year's record $1.2 trillion surplus.

September activity data also showed signs of improvement. Retail sales rose a better-than-expected 1.1% from a year earlier, accelerating from August's 0.4% increase and marking the fastest growth since March. Consumer spending remained subdued overall, however,

highlighting the uneven nature of the recovery.

Industrial output grew 5.5% in September, up from 5.2% in August and marking the strongest pace in six months, underscoring the continued resilience of the manufacturing sector.

Policymakers have held back from rolling out broad-based stimulus, betting that robust exports, boosted by the global AI-driven tech boom, will keep growth on track to meet the annual target of 4.5%-5.0%.

For January-September, the economy grew 4.6%, within the range of the government's growth.

"The key macroeconomic message is that China's economy is still supply- and production-side driven," said Yuhan Zhang, principal economist at The Conference Board's China Center.

"This supports near-term growth and industrial upgrading, while continued efforts to strengthen household consumption, services demand, and consumer confidence would make the recovery more balanced and sustainable."

Beijing has leaned heavily on exports for growth this year, but that engine faces growing pressure as domestic demand remains weak and trade tensions with the European Union escalate. A deal with the EU to rein in Chinese hybrid-vehicle shipments could weigh on the booming auto trade.

China's strategy of redirecting credit and resources from property towards high-tech industries has created a two-speed economy, where strong factory output and exports mask weak consumption and private investment.

Beijing leans on fiscal support

On a quarterly basis, the economy expanded 1.2% in the third quarter, surpassing expectations for a 1.1% rise and accelerating from 0.9% in April-June.

According to Mao Shengyong, deputy head of the NBS, new growth drivers, including high-end manufacturing, the digital economy and modern services, contributed more than 40% to economic growth in the first three quarters.

Beijing has recently expanded support for home buyers, unveiled measures to steer cheaper credit into sectors including infrastructure and technology and allocated 550 billion yuan ($82.28 billion) in unused government debt quotas to ease local governments' financial strain and expand infrastructure investment.

Authorities also stepped up fiscal support, including expanding loan interest subsidies for small private firms and consumers and tapping an 800 billion yuan policy-based financing tool to spur infrastructure investment.

Still, infrastructure investment shrank 4.2%.

Fixed-asset investment declined 7.2% in the first nine months, dropping at the same pace as in the January-to-August period.

"Improved government investment helped arrest the consistent worsening in fixed asset investment," said Tianchen Xu, senior economist at the Economist Intelligence Unit.

Investment in property, however, remained weak, falling 20.6% in the first nine months of the year.

($1 = 6.6846 Chinese yuan renminbi)