China’s Q3 GDP Growth Slows to One-Year Low as Trade and Policy Challenges Mount
China’s economy grew at its slowest pace in a year during the third quarter, as weak domestic demand left the country increasingly dependent on manufacturing output and exports, raising concerns about deepening structural imbalances.
The heavy reliance on exports, especially amid rising U.S.-China trade tensions, has sparked debate over Beijing’s ability to deliver long-term, sustainable growth while addressing key policy challenges.
Despite these headwinds, official data released Monday showed that China’s GDP expanded 4.8% year-on-year in Q3, matching forecasts and keeping the economy broadly on track to meet its 5% annual growth target, likely supported by further stimulus measures.
Economic Outlook and Policy Considerations
According to Lynn Song, chief economist for Greater China at ING, “With China on course to meet this year’s target, we may see less urgency for new policy action.”
However, she added that weak consumer confidence, sluggish investment, and the ongoing property market downturn still need urgent attention.
Beijing could use the headline resilience in growth as a strategic signal ahead of high-level talks between Vice Premier He Lifeng and U.S. Treasury Secretary Scott Bessent in Malaysia this week, as well as a potential meeting between Presidents Donald Trump and Xi Jinping in South Korea.
Recent export data also show China’s efforts to diversify away from U.S. markets. While exports to the U.S. fell 27% year-on-year, shipments to the EU, Southeast Asia, and Africa increased by 14%, 15.6%, and 56.4%, respectively.
Domestic Weakness Remains a Major Drag
Despite resilient exports, the domestic economy continues to struggle. Retail sales growth slowed to a 10-month low, while Q3 GDP growth fell from 5.2% in Q2 but remained aligned with Reuters’ forecast of 4.8%.
From January to September, the economy expanded 5.2% year-on-year, suggesting that China remains on course to hit its annual target. On a quarterly basis, GDP grew 1.1%, above expectations of 0.8% and higher than the 1.0% recorded in Q2.
Trade Rift Exposes Economic Imbalances
Renewed trade tensions with Washington have highlighted the vulnerabilities of China’s export-driven model, increasing expectations that Beijing may push for economic rebalancing toward domestic consumption.
Although exports rebounded in September, analysts noted that deflationary pressures and falling profitability continue to weigh on manufacturers. Companies expanding into non-U.S. markets face tighter margins due to fierce price competition, raising doubts about the sustainability of this strategy.
For example, Jeremy Fang, a sales officer at a Chinese aluminum exporter, said his company lost 20% of revenue despite boosting sales to Latin America, Africa, and Southeast Asia, as U.S. orders plunged nearly 90%.
“You have to be ruthlessly competitive on price,” Fang said. “If your customer offers $100, you must be ready to drop $10–$20 just to keep the deal.”
Meanwhile, President Trump has threatened to double tariffs on Chinese goods from November 1, although U.S. officials later indicated both sides are working to ease tensions through dialogue.
China’s Five-Year Plan and Policy Priorities
This week, Chinese leaders are convening a closed-door meeting to finalize the country’s 15th Five-Year Development Plan, which is expected to focus on high-tech manufacturing and innovation, reflecting the growing rivalry with the United States.
Investors are also watching the upcoming Politburo session and Central Economic Work Conference in December for signals about policy direction for 2026.
The property crisis remains a major drag, with investment in the sector plunging 13.9% year-on-year in the first nine months of 2025, eroding consumer sentiment and financial stability.
While the government has rolled out modest stimulus, analysts remain split over the likelihood of additional measures this year. Dan Wang, China Director at Eurasia Group, said:
“I don’t expect major consumption-focused stimulus. Policymakers are prioritizing structural reforms, such as pension changes, which will benefit spending in the long term but may reduce short-term demand.”
Industrial and Retail Data Offer Mixed Signals
Industrial output rose 6.5% year-on-year in September, the fastest pace in three months and well above forecasts of 5.0%, showing signs of strength in manufacturing.
However, retail sales increased only 3.0%, the slowest in ten months, and fixed-asset investment contracted 0.5% in the January–September period — its first decline since the pandemic.
These figures underscore the uneven recovery of the Chinese economy, where industrial resilience contrasts with consumer weakness and falling investment.
Summary
China’s Q3 GDP slowdown highlights a pivotal moment for policymakers balancing short-term stability with long-term structural reform. With trade frictions, property market stress, and soft consumer demand persisting, the country’s ability to sustain growth near 5% will hinge on targeted stimulus and a successful shift toward domestic-led growth.
