China’s economic growth is expected to have accelerated slightly in the third quarter, supported by resilient exports, demand for high-tech products and fresh government stimulus, although persistent weakness in domestic consumption and investment is likely to keep pressure on Beijing to introduce further measures to sustain the recovery.
Gross domestic product (GDP) is forecast to have expanded 4.4% year-on-year in July-September, up from 4.3% in the second quarter, according to a Reuters poll of economists ahead of official data due on Monday. The second-quarter reading was China’s weakest growth rate in more than three years.
The projected improvement, however, remains below the 4.6% forecast in a Reuters poll conducted in July and would fall short of the lower end of the government’s full-year growth target of 4.5% to 5%.
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The figures point to an economy still struggling to generate balanced growth. China’s manufacturing sector and export industries have provided important support, particularly as demand for technology-related products has remained resilient. But household spending, private investment and the prolonged property downturn continue to constrain domestic activity.
Beijing has increasingly redirected credit and resources away from property and towards advanced manufacturing and high-tech industries. While the strategy has supported industrial production and exports, it has also contributed to a two-speed economy in which strong factory activity contrasts with weak domestic demand.
“While growth remains near the lower end of the government’s target range, recent data suggest economic momentum improved meaningfully toward the end of the quarter, supported by resilient exports, a recovery in manufacturing activity and the initial effects of policy easing,” said Zhou Hao, chief economist at Guotai Junan International.
On a quarterly basis, China’s economy is expected to have expanded 1.1% in the third quarter, accelerating from 0.9% in April-June, according to the poll.
The expected improvement suggests that recent policy support and stronger manufacturing activity have helped stabilize growth. However, the gap between the latest projections and the government’s target highlights the difficulty of sustaining momentum through exports and industrial production alone.
China’s export performance remains one of the strongest supports for its economy, even as domestic demand struggles to recover.
The country’s trade surplus widened more than expected in September as exports surged, putting China on course to surpass last year’s record surplus of $1.2 trillion. The strength of exports has helped offset weaker activity at home, but it also risks intensifying trade disputes with major trading partners.
The European Union has become a particular source of pressure as Chinese manufacturers expand their presence in global markets. A proposed arrangement to rein in Chinese hybrid-vehicle shipments could weigh on the country’s booming automotive trade, adding uncertainty to an export sector that has become increasingly important to overall economic performance.
China’s export-led approach also faces questions about how long foreign demand can compensate for subdued consumption at home. Trade restrictions, tariffs and other barriers could limit market access for Chinese producers, while a slowdown in investment across AI-related sectors could weaken demand for some of the technology products supporting industrial growth.
The risk is that China could face pressure on both sides of its growth model: exports may become more difficult to expand at the same pace, while domestic demand remains too weak to take over as the principal engine of growth.
Manufacturing indicators nevertheless showed signs of improvement towards the end of the third quarter. The official purchasing managers’ index returned to expansion in September after two consecutive months of contraction, while a private-sector manufacturing survey recorded its strongest growth in activity in five months.
Those readings suggest that factory conditions improved, although they do not by themselves establish that the recovery is broad-based or that domestic demand has strengthened sufficiently.
September’s activity data, due alongside the GDP figures, are expected to show industrial output growth accelerating to 5.5% year-on-year from 5.2% in August. Retail sales growth is forecast to edge up to 0.6% from 0.4%, indicating that consumer spending remains considerably weaker than industrial production.
Fixed-asset investment is projected to have fallen 7.3% in January-September, compared with a 7.2% decline in January-August. The continued contraction would reinforce concerns that businesses and other investors remain reluctant to commit capital despite government efforts to support growth.
The gap between industrial activity and investment has become notable. Strong production can support output in the short term, but sustained growth also requires businesses to expand capacity, households to spend, and private investors to see sufficient demand to justify new projects.
Beijing Steps Up Support as Domestic Demand Remains Weak
Chinese authorities have introduced additional measures to support economic activity as growth remains under pressure.
In late September, Beijing announced targeted interest-rate cuts and mortgage subsidies after the cabinet pledged stronger action to shore up the economy and meet the annual growth target. Earlier this month, authorities also allocated 550 billion yuan, equivalent to about $82 billion, in unused government debt quotas to ease financial pressure on local governments and support infrastructure spending.
The measures reflect a growing reliance on policy intervention to sustain activity, particularly as the property sector remains weak and private investment contracts.
Local governments play an important role in infrastructure development and public spending, but financial constraints have limited their capacity to support economic growth. Additional debt quotas could provide room for infrastructure projects and help relieve immediate funding pressures, although the ultimate effect will depend on how quickly the resources are deployed and whether the resulting spending generates additional economic activity.
Economists have also called for measures that address household incomes and employment, rather than relying predominantly on industrial investment and infrastructure spending.
“There remains room for further support measures, such as policies to boost employment and incomes and other measures to boost domestic demand,” said Lynn Song, ING’s chief Greater China economist.
“Should economic momentum remain subdued into year-end, policymakers may respond with further fiscal stimulus and a broader easing of monetary policy,” Song added.
The emphasis on employment and income reflects a central weakness in China’s recovery. Industrial support can help manufacturers increase output, but stronger household purchasing power is necessary to create a more durable source of demand for goods and services.
Without a stronger consumer recovery, additional production risks deepening the imbalance between supply and demand. Manufacturers may continue to compete aggressively for customers at home and abroad, while weaker investment could limit the willingness of businesses to expand.
The government therefore faces a choice over how to distribute further support. More infrastructure spending could provide a relatively direct boost to activity, while measures aimed at employment, household incomes and consumption could help address the underlying weakness in domestic demand. The relative effectiveness of these approaches will depend on their scale, timing and implementation.
Fiscal Policy Likely to Carry More of the Burden
China is expected to rely more heavily on fiscal stimulus because faster producer-price gains and a pickup in consumer inflation may limit the scope for aggressive monetary easing.
Analysts polled by Reuters expect the People’s Bank of China to leave its benchmark loan prime rates and banks’ reserve requirement ratio unchanged through the first quarter of 2027.
That outlook suggests policymakers may prefer targeted fiscal measures over prominent interest-rate cuts, particularly if inflationary pressures become more pronounced. Keeping lending rates and reserve requirements unchanged would not prevent authorities from using other policy tools, but it would indicate a more cautious approach to broad-based monetary easing.
That matters because monetary easing alone may be insufficient to resolve the structural problems weighing on China’s economy. Lower borrowing costs can support credit demand, but businesses are less likely to invest if they do not expect stronger sales, while households may remain cautious if employment and income prospects are uncertain.
Fiscal support can address some of these constraints more directly, although it also raises questions about the efficiency of public spending and the ability of financially strained local governments to implement projects.
The next indications of Beijing’s priorities are expected from a Politburo meeting and the annual Central Economic Work Conference in December. Both could provide clues about the scale and composition of support planned for 2027.
Reuters poll projections suggest growth could edge up to 4.5% in the fourth quarter, putting full-year expansion at 4.5%, before slowing to 4.4% in 2027.
That outlook leaves China close to the lower end of its growth target while highlighting the limits of the current recovery. Exports and high-tech manufacturing have helped the economy withstand domestic weakness, but growing trade friction and uncertainty around AI-related investment could make that support less dependable.
Beijing faces a major challenge to turn the improvement in industrial activity into broader economic momentum. Analysts believe that unless household spending and private investment recover more convincingly, further stimulus may be needed to meet growth objectives, while the longer-term shift towards a more balanced economy remains incomplete.