China grew by 4.5% in the third quarter, but the hot and cold conditions were uneven: Exports surged, and the area of newly started construction in the property market plummeted

The National Bureau of Statistics of China announced that the gross domestic product (GDP) in the third quarter of 2026 increased by 4.5% year-on-year, an increase of 0.2 percentage points from the 4.3% in the second quarter. This brings the cumulative growth in the first three quarters to 4.6%, falling within the full-year target range of 4.5% to 5%.

The results released on Monday (October 19) were slightly better than outside judgment: 50 economists surveyed by Reuters predicted an average of 4.4%, and nine domestic and foreign institutions surveyed by Caixin also had an average of 4.4%. The actual figures were both higher than expected.

In addition to macro data, the life experience of ordinary people may be "unequal": gasoline prices in September increased by 16.6% year-on-year; driven by the artificial intelligence boom, the price of data storage equipment increased by 46.7% year-on-year, computers increased by 21.8%, and mobile phones increased by 14.9%. The pork in the wet market is more than 10% cheaper than last year.

Analysts generally pointed out to the BBC that the current economy is "hot on the outside and cold on the inside": exports and high-end manufacturing support growth, while domestic consumption, investment and real estate markets remain weak. They also reminded that the risks of relying on a single external demand engine are accumulating, and Beijing's stimulus space is limited, and it may not be willing or able to significantly increase investment at this point.

Who is pulling and who is dragging

Supporting the third quarter were exports and high-end manufacturing.

The momentum of exports is quite remarkable: overall exports grew by 28.4% in the third quarter, significantly faster than the 17.5% in the first half of the year, and grew by 36.3% in US dollars in a single month in September.

Moody's Analytics said in comments to BBC Chinese that the main driver of this recovery is exports. But it also pointed out that China's economy currently relies on a single external growth engine, but this engine has also shown early signs of weakness.

However, a considerable part of the strength of exports is supported by prices. Taking September as an example, the export volume of integrated circuits increased by 136% year-on-year, the average export price increased by 133.7%, and the export quantity only increased slightly by 1%. The money was mainly made from price increases.

In addition, in the first three quarters, the added value of high-tech manufacturing increased by 14.3% year-on-year, nearly three times the 5.3% growth rate of the overall industry; the output of 3D printing equipment, lithium-ion batteries, and industrial robots increased by 62.5%, 39.5%, and 29.1% respectively.

But the problem is that "this strength has not really been transmitted to household consumption and domestic investment for the time being." Sheana Yue, a senior economist at Oxford Economics, told the BBC that if consumption and investment continue to be weak, even if GDP accelerates in the third quarter, "we will be very cautious and will not easily interpret it as evidence of a full economic recovery."

As Yu Huiyue said, real estate is still undergoing deep adjustments: investment in real estate development fell by 20.6% year-on-year in the first three quarters, a greater decline than the 18% decline in the first half of the year, and the area of ​​newly started construction fell by nearly 25%. Moody's reminded that such a large decline in new construction starts means that construction activity will continue to shrink in the coming months, which will drag down upstream and downstream industries such as cement, steel, and home appliances.

Investment overall is shrinking. In the first three quarters, fixed asset investment fell by 7.2% year-on-year, which was deeper than the 5.7% decline in the first half of the year; even after excluding real estate development investment, it still fell by 4.2%.

Consumption has picked up, but the extent is limited. Total retail sales of consumer goods increased by 1.1% year-on-year in September, which was better than the 0.4% increase in August. Alicia García-Herrero, chief Asia-Pacific economist at Natixis, told the BBC that for an economy growing at 4.5%, retail sales growth of only 1.1% was "still low" and that the rebound was "more due to the previous base being too low."

The service industry supports the other half of the sky: value added increased by 5.2% in the first three quarters, accounting for nearly 60% of the economy, and is the largest contributor to growth. However, according to Moody's analysis, this part of the growth is driven by information technology and business services and has little to do with residents' daily consumption.

Why is the policy no longer increasing?

With such a report card, the official tone is positive. Mao Shengyong, deputy director and spokesperson of the National Bureau of Statistics of China, said at a press conference of the State Council Information Office on Monday that the cumulative growth rate of 4.6% in the first three quarters remains the leading among the world's major economies, and the economic increment of 5.7 trillion yuan (US$853.3 billion; NT$27.7 trillion) is the largest in the same period in the past five years. In the context of conflicts in the Middle East and rising international oil prices, which have a greater impact on global growth, this result is "hard-won and valuable."

The policy is not without action. Since the end of September, the People's Bank of China (Central Bank) has lowered mortgage supplementary loan interest rates and expanded re-loan quotas for technology and private enterprises; the Ministry of Finance and other departments have launched mortgage interest subsidies for first-time home buyers; local governments have also been allowed to use unused bond issuance quotas.

Moody's judgment on this move is that they "rely on providing cheaper credit to specific borrowers rather than directly supporting consumption broadly, and therefore are difficult to quickly boost domestic spending."

Asia said: The government’s focus this time is infrastructure rather than consumption, which explains why Beijing is unwilling to make more efforts in issuing consumer vouchers. In her view, the government is "probably satisfied" with the 1.1% retail sales growth in September. This number is not high, but it is enough reason (the government) not to increase policy intensity.

She also points to the fiscal space itself. She said that the whole world is asking the same question: How much fiscal space does China still have? Beijing is very cautious about its financial situation, "because it is very clear that the space it can use is very limited."

The only engine is also under pressure

However, exports and high-end manufacturing, which are driving the economy strongly, also face uncertainties in the future.

In the first eight months of this year, price increases contributed to 85% of the new revenue of global memory chips, while shipments only contributed 15%. Moody's sees this as a clear tipping point risk: A price-driven boom can reverse quickly, and once prices turn around, the export engine will take a hit.

On the other end are trade barriers. The truce reached with Washington in Busan a year ago has only been extended until January 10 next year, less than three months before it expires. On the EU side, at the EU Leaders' Summit on October 15, European Commission President von der Leyen listed chemicals and industrial machinery as industries that need priority protection, and recommended that import quotas, tariffs and other safeguard measures be studied as soon as possible; France and Germany also jointly proposed an "emergency cut-off switch" mechanism to allow the EU to quickly restrict the entry of relevant companies when it determines that the market is distorted. This mechanism has not yet been approved.