China's economy grew by 4.5% year-on-year in the third quarter of 2026, according to the National Bureau of Statistics of China, exceeding economists' expectations and accelerating from the 4.3% growth recorded in the second quarter. The stronger-than-expected performance was driven by a surge in exports, particularly of electronics and AI-related equipment.
Exports and Industrial Output Drive Growth
Industrial production rose by 5.5% in September, up from 5.2% in August, while retail sales increased by only 1.1%, up from 0.4%. This divergence highlights that factory output is growing much faster than consumer spending.
Duncan Wrigley, chief China economist at Pantheon Macroeconomics, noted that Beijing's policymakers were likely to view their efforts to stabilise headline growth in the third quarter as successful. "Headline industrial production rose in September partly as coalmines resumed operations after safety inspections prompted by a major accident. Manufacturing output growth remained robust at 6.0% year on year in September, buoyed up by stronger export demand for electronics, AI-related equipment and autos," Wrigley said.
Government Target Within Reach
China's economy has grown by 4.6% in the first nine months of the year, putting it on track to hit the government's 2026 target of 4.5%-5% growth without additional stimulus measures. "Hi-tech manufacturing output continues to outperform traditional sectors, as China climbs the value-added ladder," Wrigley added.
However, fixed-asset investment fell 7.2% over the first nine months, property investment tumbled by 20.6%, and infrastructure spending remained weak, indicating ongoing domestic demand challenges.
AI Boom Offsets Other Drags
Data released last week showed China's exports surged by more than a third in September, lifted by a rise in shipments of electronics related to AI. "This pickup in GDP growth mainly reflects ongoing export strength on the global AI/tech boom, more than offsetting drags from the Iran conflict and ongoing weakness in domestic demand," said analysts at ABN Amro.
