Our economic outlook for China

China’s economic growth accelerated modestly to 4.5% year over year in the third quarter, lifting year-to-date growth to 4.6%, well on track to achieve the government’s 4.5%–5% growth target range. That said, the economy’s underlying strength continues to come primarily from production, underpinned by resilient exports, particularly in AI-related and green-technology products. China is increasingly positioned as a manufacturing hub for the global AI buildout, spanning servers, semiconductors, AI-enabled electronics, cooling systems, and batteries.

Looking ahead, faster implementation of policy financing tools and an additional 550 billion yuan ($82 billion in U.S. dollars) in unused local-government debt quota should gradually support growth momentum in the fourth quarter, alongside a favorable base effect. Nevertheless, the recovery continues to face significant challenges. Private consumption shows little evidence of sustained improvement, the property sector is still searching for a bottom, and fiscal constraints are weighing on infrastructure spending and business investment. Export resilience may also face increasing geopolitical headwinds.

Faster deployment of already approved funding will be central to supporting activity in the fourth quarter. Policymakers are more likely to rely on existing measures through year-end, particularly following the modest support package announced in late September. Fiscal and credit support will likely remain focused on strategic technology sectors and the management of the local government debt burden.

The People’s Bank of China has officially changed the policy anchor from the seven-day reverse repo rate (currently 1.4%) to the overnight reverse repo rate (currently 1.25%). The move represents a de facto easing, giving rates more room to fall and reducing the cost of short-term liquidity.