China's Economy Accelerates with AI Export Boom, Outweighing Domestic Weakness

China's economic growth picked up in the third quarter, rebounding from a three-year low, largely due to a surge in exports boosted by the artificial intelligence (AI) sector. However, the country's outlook remains clouded by weak domestic spending and escalating global trade tensions.

Highlights

• China's economy grew by 4.5% in the third quarter, an improvement from the previous period.
• Sales of high-tech goods increased by 14.3%, while battery and industrial robot production grew by over 29%.
• The trade surplus is on track to surpass last year's record of $1.2 trillion.
• Property investment declined by more than 20% in the first nine months compared to the previous year.
• Analysts highlight China's reliance on exports as a significant risk.

Details

According to official Chinese data, the world's second-largest economy expanded by 4.5% from July to September. While this is below the 5% growth recorded in the first quarter, it falls within the lower end of Beijing's annual growth target of 4.5%-5%. Sheana Yue, a researcher at Oxford Economics, noted that manufacturing and high-tech exports have bolstered China's growth, despite subdued investment and domestic spending.

Nevertheless, the economy continues to grapple with a prolonged property slump. Official data indicates that property investment fell by over 20% in the first nine months compared to the same period last year, a consequence of years of overbuilding and excessive borrowing by private developers. Consumer spending also remains sluggish, impacted by weak wage growth and high youth unemployment, leading to a more "pessimistic" outlook among Chinese consumers.

Why it matters

While AI-driven exports offer a short-term boost to China's economy, underlying structural issues like the property slump and weak domestic demand pose significant long-term challenges. The heavy reliance on exports as a "single external engine" makes the economy vulnerable to global shocks and trade disputes. Moreover, there are concerns about whether the billions of dollars invested in AI infrastructure will translate into the promised substantial profits.