China’s economy is showing resilience to the distress. In fact, in the third quarter of this year its GDP grew 4.8% on-year—beating the 4.7% market forecast. Analysts at Standard Chartered have increased their China 2025 growth forecast to 4.9%, on the back of surging demand for China’s exports. This is up from their earlier projection of 4.8%. This upward revision is a welcome sign of measured hope despite the continued instability in the larger economy.
According to the most recent data, net exports played an outsized role in padding growth. That’s a healthy growth rate, and they accounted for 1.2 percentage points of the total Q3 GDP growth. While the performance in agriculture exports is indeed encouraging, the investment landscape in China has taken some hard hits. Demand fell off a cliff. Investment levels rose sharply quarter-over-quarter. This drop went beyond just the housing sector, pulling more alarm bells about the entire economy’s recovery trajectory.
China enters the last quarter of the year with hope. At the same time, economists are looking at a relatively modest year-over-year Q4 growth rate of just 4.4%. Recent trends point to ongoing weakness in domestic demand, especially in the investment component. Standard Chartered’s economists noted that “September data points to continued domestic demand weakness, especially in investment, which has prompted more fiscal-supportive measures.”
Adding to China’s economic uncertainty are escalating trade conflicts with the United States. At the same time, analysts argue that both countries have strong economic incentives to continue their existing tariff truce. Negotiations are not yet over. Despite missing a government funding deadline July 11, negotiators remain hopeful. China will certainly want to see U.S. export controls relaxed and other restrictions rolled back. In exchange, China may agree to lift its rare earth export restrictions. This might not be the end of the U.S. Global Rare Earth Supply Chain; their dominance in it may be solidified.
China’s competitive edge in rare earth production poses challenges for the U.S., which may take years to establish significant production capabilities outside of China. This new reality makes it all the more necessary to keep lines of communication open between the two economic superpowers.
“China’s GDP expanded 4.8% y/y in Q3, beating the market estimate of 4.7%. A breakdown by components revealed mixed signals. Exports were resilient, with net exports contributing 1.2ppt to headline GDP growth while investment plunged, with weakness broadening beyond the housing sector.” – Standard Chartered’s economists