Our economic outlook for China

Better-than-expected third-quarter GDP growth of 4.8% year over year kept China’s 5% annual growth target within reach. Robust export activity continued to support industrial production despite mounting global trade uncertainty. However, domestic challenges persist, and the gap between supply-side strength and weak domestic demand has widened. The GDP deflator, an output-related measure of price changes, was negative for the 10^th time in 11 quarters, extending China’s historic deflationary stretch. Although a recent stock market rally has boosted financial sector output through increased trading activity, its broader expansionary impact on the real economy may be limited.

On the external front, renewed trade tensions with the U.S. could dampen market sentiment somewhat. However, the tensions have an aspect of strategic positioning ahead of a potential meeting of the nation’s leaders at the forthcoming Asia-Pacific Economic Cooperation summit.

We believe broad-based stimulus is unlikely in the near term. However, moderating growth, and especially weakness in investment, appears to have alerted policymakers to the need for some fiscal support, which should aid domestic demand into 2026, albeit modestly. We expect only a mild policy rate reduction of 10 basis points for the rest of the year to facilitate fiscal expansion. The forthcoming release of the 15^th five-year plan will inform China’s structural policy agenda, offering high-level strategic guidance.