China’s economy grew 4.5% in Q3: What drove growth and what remains a concern

Industrial production, advanced manufacturing and exports remained strong, but consumer spending grew slowly and investment continued to contract, particularly in the property sector. China’s gross domestic product (GDP) reached 107.11 trillion yuan in the first three quarters of 2026, measured at constant prices. After expanding 5% in the January-March quarter, growth slowed to 4.3% in April-June before recovering in the third quarter.

GDP rose 1.2% quarter on quarter in July-September, according to the NBS. The statistics agency warned that weak domestic demand remains a challenge. “However, we should be aware that the international environment is complex and volatile, the issue of insufficient domestic demand remains prominent, and the foundation for steady economic growth still needs to be consolidated,” the NBS said in its release.

What is driving China’s 4.5% economic growth? Industrial production and exports were among the main sources of support for the economy. Industrial output among enterprises above the designated size increased 5.3% year on year in the first three quarters. Manufacturing output rose 5.7%, while mining output grew 2%. Equipment manufacturing expanded 10.2%, and high-tech manufacturing grew 14.3%. In September, industrial output increased 5.5% year on year, accelerating from the previous month.

Output of 3D-printing equipment rose 62.5% year on year in the first nine months, while lithium-ion battery production increased 39.5% and industrial robot output grew 29.1%. The figures point to continued strength in advanced manufacturing, although performance varies across industries. Trade also supported growth. China’s total goods imports and exports rose 18.8% year on year in the first three quarters, reaching 39.94 trillion yuan.

Exports increased 16.4%, while imports grew 22.3%, according to the NBS. Trade strengthened further in September, with the value of imports and exports rising 27.5% year on year. Exports grew 29.6%, and imports increased 24.6%. Exports of mechanical and electrical products rose 23.7% in the first three quarters, accounting for 64.3% of China’s total exports. Trade with countries participating in the Belt and Road Initiative increased 17.1%, while private enterprises recorded 19.1% growth in imports and exports.

Reuters reported that robust exports helped China’s economy grow faster than expected in the third quarter. However, reliance on external demand also leaves the economy exposed to changes in global trade, overseas demand and trade restrictions. The services sector provided another source of growth. Services value added increased 5.2% year on year in the first three quarters. Leasing and business services grew 12.3%, while information transmission, software and information technology services expanded 10.4%.

Financial services rose 5.8%, and accommodation and catering grew 5.5%. Despite this expansion, growth in manufacturing, exports and selected services industries has not been matched by a similar improvement in household consumption. Why do weak demand and falling investment remain concerns? Retail sales of consumer goods reached 37 trillion yuan in the first three quarters, increasing just 1.1% year on year.

Sales of goods rose 1%, while catering revenue grew 2.4%. September retail sales also increased 1.1% year on year, although the pace was 0.7 percentage points faster than in August. The broader retail measure, covering goods and services, rose 2.6% in the first nine months. Retail sales of services increased 5%, while goods sales grew 1%. Online retail sales of goods and services rose 4.4%, supported by a 5.3% increase in online services sales.

The relatively slow pace of retail growth contrasts with stronger industrial production and exports, highlighting the gap between manufacturing activity and domestic demand. Investment remained another major weakness. Fixed-asset investment, excluding rural households, fell 7.2% year on year in the first three quarters. Even excluding real estate development, investment declined 4.2%. Property investment fell 20.6%.

The floor space of newly built commercial buildings sold declined 13.2%, while the value of sales dropped 13.9%, underlining the continuing pressure on the property sector. Private investment also contracted, falling 10.4% in the first three quarters. Excluding real estate development, it declined 6.7%, suggesting that investment weakness extends beyond property. 4 tn in future revenue: Inside AI financing loop flagged by IMF Some industries continued to attract investment.

Investment in high-tech industries increased 4.9% year on year, while information services recorded a 20.2% rise. Investment in aerospace vehicles and equipment manufacturing grew 12.5%, and electronic and communication equipment manufacturing increased 7.6%. Investment in intellectual property products rose 9.3%. These gains, however, were not enough to offset the broader decline. Investment in the tertiary sector fell 10%, while infrastructure investment declined 4.2%.

What do inflation, employment and income data show? China’s consumer price index increased 0.9% year on year in the first three quarters, while core inflation, which excludes food and energy, rose 1.1%. Producer prices for industrial products increased 2.3% over the same period and were up 5% in September. Employment remained broadly stable. The average urban surveyed unemployment rate was 5.2% in the first nine months, unchanged from the same period in 2025.

The rate also stood at 5.2% in September, down 0.1 percentage points from August. Household income continued to grow. Nationwide per capita disposable income rose 5.3% in nominal terms in the first three quarters and 4.4% after adjusting for price changes. Real income growth was 5.6% for rural households, compared with 3.6% for urban households. These figures indicate that incomes continued to rise and unemployment remained stable.

However, the modest increase in retail sales suggests that household spending has yet to accelerate significantly. What does China’s latest GDP data mean for its growth outlook? China’s third-quarter growth of 4.5% marks a recovery from the previous quarter and puts the economy closer to its annual growth target. Strong exports, manufacturing and selected services industries have helped sustain activity despite weakness in other areas.

However, falling investment, the property downturn and slow retail sales remain significant constraints. The latest figures do not yet indicate a broad-based recovery in domestic demand. China’s ability to sustain growth will therefore depend not only on industrial output and overseas sales but also on whether household consumption and investment strengthen. As the NBS acknowledged, insufficient domestic demand remains a key challenge.