China’s economy grows 4.5% on robust exports as domestic weakness persists

China's economy grew by 4.5% in the July-September quarter, driven by robust exports, according to official figures released on Monday. The record growth brings the country closer to its annual growth target of 4.5%-5%, the same target set last year. The International Monetary Fund (IMF) recently lowered its forecast for China's growth this year to 4.5%, which aligns with Beijing's target.

Exports have been a bright spot for China's economy, with a 36% jump in exports last month and a $938 billion surplus for January-September. Higher US tariffs have led Chinese exporters to seek new markets, including Southeast Asia, Latin America, and Europe. High-tech goods such as semiconductors and hybrid and electric vehicles are leading the growth.

However, domestic demand has remained weak, as output expanded quickly while consumption lagged. This has resulted in limited job creation and income gains, with the export-reliant model producing few benefits for the broader economy. Max Zenglein, Asia Pacific senior economist at The Conference Board, believes that the headline growth figure is becoming an increasingly poor indicator of how the broader economy is performing.

EU members are pressing China to rebalance its trade, as they fear that cheaper Chinese imports could threaten their own domestic industries and trade balance. China shipped about 919,000 passenger vehicles overseas in September, marking a 70% increase from the same period a year earlier. However, EU member states want further curbs, even after an agreement this month to limit Chinese hybrid vehicle imports over the next few years.

Despite the progress, analysts say resolving trade imbalances will be difficult in the short term. While China's central bank has rejected claims that its undervalued currency feeds the surplus, policymakers argue that an undervalued yuan has contributed to the trade imbalance. Beijing has stated that it does not seek a large trade surplus and is committed to expanding domestic demand.