China’s unexpectedly strong third-quarter economic growth suggests that Beijing is on course to meet its 2026 target for the economy to grow by 4.5-5 per cent. But although this figure is enviable for other major economies, it is historically low by Chinese standards and reflects an increasingly unbalanced, two-speed economy.
The 4.5 per cent growth figure was an improvement on the previous three-month period but it was China’s lowest for decades apart from during the Covid pandemic. And with domestic demand still weak, the growth is driven by exports at a time when partners like the European Union are becoming increasingly impatient with their ever-expanding trade deficit with China.
China’s exports are benefiting from the buildout of infrastructure for artificial intelligence and the global demand for microchips and technological equipment for data centres. Chinese AI models such as DeepSeek, Kimi and Z.ai are surging in popularity around the world, and the country is leading in the production of advanced robots and other cutting-edge technology.
But while new industries are flourishing, more traditional drivers of economic growth are struggling, with none suffering more than the housing market. The share of China’s population living in cities doubled this century, and house prices increased sixfold in the 15 years before they crashed five years ago.
Property investment fell by 20.6 per cent in the first nine months of this year and although there are signs of stabilisation in the market in the biggest cities, prices are still falling elsewhere. Consumers are continuing to choose saving over spending, contributing to the deflation, which is accelerated by price wars in many sectors that have cut profit margins to the bone.
This autumn has seen policy measures aimed at boosting consumption, including mortgage subsidies for some borrowers and capital injections for state banks. But Beijing remains shy of introducing stimulus on a large scale, much less of the kind of dramatic steps needed to rebalance the economy towards consumption.