China’s economy steadies as surging exports lift Q3 growth above forecasts

Linda_Heyer
Mon, 10/26/2026 - 13:46

picture alliance / Chen Xiaodong / Costfoto

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China Economic Indicators

Oct 26, 2026

6 min read

China’s economy steadies as surging exports lift Q3 growth above forecasts

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This analysis is part of the Q3/2026 MERICS China Economic Indicators, our quarterly analysis of China’s economic data. You can find the most recent data here .

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China’s economy recovered slightly in the third quarter as GDP growth was 4.5 percent, bettering expectations and improving on 4.3 percent in Q2 - the lowest quarterly growth in almost four years. China is therefore likely to reach its 2026 annual GDP growth target of 4.5-5 percent as overall growth over the first three quarters of 2026 was 4.6 percent. As a result, the leadership will probably continue to provide selective support to the economy, side-stepping any pressure to return to broad-based fiscal stimulus. For now, booming exports continue to deliver strong momentum, which helps to keep the economy humming overall.

Conditions are not tough enough to provoke a major stimulus

However, there is no shortage of challenges. Resilient headline growth concealed deepening imbalances within the economy. Sources of growth are narrowing, driven mainly by a few industries, as well as by exports. Overall industrial value added grew by a healthy 5.5 percent in September but, when examined by sector, the strong increases were delivered by the more advanced industries.

Value added in high-tech manufacturing surged by 15.3 percent and specialized equipment manufacturing jumped by 12.1 percent. By contrast, fixed-asset investment (FAI) fell by 7.2 percent from January to September compared to the same period in 2025. A state-led push for infrastructure investment briefly lifted FAI growth at the beginning of 2026, but it has steadily declined since. The worst-affected sector remains real estate, where investment has declined by 20.6 per cent so far this year, which is a new low. Weak consumption also continues to weigh down growth.

But any expectations of stronger fiscal support may be in vain. Pressures in other parts of the economy do not seem to be getting materially worse. Youth unemployment reached 18.9 percent in August (when new graduates enter the job market), which was the same peak level as last year. New job creation reached 10.5 million between January and September 2026, roughly the same as in 2025. The global energy supply shock pushed up producer prices by 5 percent in September, but consumers are not feeling the pinch yet, as consumer prices crept up by a mere 0.9 percent.

Additionally, weak retail sales growth of 1.1 percent in September reflected the government’s ongoing struggle to boost consumption, but also its reluctance to take more forceful measures.

The measures taken mostly focus on the supply side, leaving underlying challenges like weak sentiment unaddressed. China’s household goods trade-in scheme lifted sales of items such as communication equipment (up 31.1 percent). However, gains are typically short-term and not sustained as people may buy a large item sooner than otherwise, but overall demand for these products has not grown.

Exhibit 1

Exports keep momentum going in China’s increasingly single-engine economy

Exports continued to lift the economy. In September, exports climbed by 36.3 percent in value terms, while imports rose by 31 percent. For most of this year, Chinese imports were growing faster than exports due to higher input prices. This trend has now reversed, pushing China’s trade surplus to USD 133.5 billion in September. It was the highest trade surplus since January 2025, when Chinese firms frontloaded deliveries to get ahead of Trump’s return to the White House, and the second highest monthly surplus on record. Once again, China’s trade partners find themselves grappling with the fallout from an onslaught of Chinese goods in their home markets.

The automotive industry neatly encapsulates this dynamic of a weak domestic market and economic strength abroad. Industrial value-added in the automotive industry rose by 6.7 percent in September year-on-year. Although output of passenger vehicles dropped by 9.4 percent year-on-year in September (to 2.6 million cars), retail sales of passenger vehicles in China fell much more steeply, plunging 28.1 percent to 1.6 million cars. Most of these surplus cars go overseas. Already, China’s monthly passenger vehicle exports have exceeded 900,000 units three times this year. And year-on-year export growth of passenger vehicles stood at 64.2 percent in September.

Beijing tackles financial risks from weak banks to protect against hazards ahead

As the 2026 GDP target is well within reach, Beijing is unlikely to start splurging on stimulus measures. Growth remains high in technologically advanced areas of the economy, which are central to the government’s industrial policy goals. And the export engine, which compensates for lack of demand in the feeble domestic market, shows no sign of sputtering.

Stimulus measures announced in recent months have been modest in scope; those announced on September 29 did not indicate a shift towards broader support. The measures offered subsidies for some mortgages, and the central bank cut the pledged supplementary lending facility rate to encourage policy banks to step up lending. Other recent measures have included the release of unused bond quotas for local governments and the final tranche of this year’s consumer trade-in program. New measures that might meaningfully increase household incomes are unlikely as long as global demand for China’s exports stays high and the leadership’s technological and industrial policy goals are achieved.

However, Beijing is not oblivious to the problems besetting China’s economy. Policymakers have been consolidating the banking sector, closing or merging 82 village and township banks, 44 rural commercial banks and 38 county-level rural credit cooperatives between January and early May.

The government is also recapitalizing big state banks, and its financial stability draft law includes a rescue fund for strained financial institutions. This suggests Beijing is taking measures to stabilize its chosen economic model and ensure a more robust position if things worsen. Capital for state banks translates into more funding available to support high-tech industries.

And consolidating troubled rural banks into the big banks helps defuse risks – from local government debt or exposure to small local firms – that could otherwise precipitate a crisis with wider consequences. None of this suggests any changes to China’s export-led growth model, so further tension with its trade partners is likely.

Author(s)

Andreas Mischer

Analyst

Author(s)

Andreas Mischer

Analyst

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