Can China still hit its growth target?

China says its economy remains on track to meet its official growth target of "around 5%" this year, even as new data reveals the slowest pace of expansion in a year and mounting structural pressures.

The Chinese National Bureau of Statistics (NBS) said growth in the first three quarters had laid a "solid foundation" for achieving the full-year goal, citing stronger exports and improving industrial output. But analysts warn that the slowdown in investment and persistent deflationary pressures could make sustaining that pace difficult.

Current economic performance

China's Gross Domestic Product (GDP) grew 4.8% year-on-year in the third quarter (July–September), matching expectations but marking the weakest performance in a year. That was down from 5.2% in the second quarter, bringing growth for the first three quarters to 5.2% overall, says Bloomberg.

However, the headline numbers mask uneven performance across sectors.

• Exports have provided an unexpected cushion, buoyed by strong global demand for Chinese manufactured goods.
• Industrial output grew 6.5% year-on-year in September, accelerating from August and exceeding forecasts.
• Fiscal support is also playing a role: Beijing recently allowed provinces to tap into 500 billion yuan ($70 billion) in unused bond quota to bolster local spending and infrastructure.

Economists say these measures may help stabilize short-term growth and reduce the urgency for broader stimulus.

The headwinds

Despite official confidence, China's latest data underscores deep-rooted economic vulnerabilities.

1. Investment collapse

Fixed-asset investment (FAI) - covering infrastructure, manufacturing, and property - fell 0.5% in the first nine months, the first such contraction since the pandemic in 2020.

Private sector investment remains weak, reflecting waning confidence in both growth prospects and policy direction.

The real estate sector continues to drag heavily on the economy. Property investment plunged 13.9% year-to-date through September, extending a multi-year slump that analysts warn could permanently reduce China's investment-driven growth model.

2. Weak domestic demand and deflation

Retail sales grew just 3.0% in September, the slowest pace since November 2023. Economists say consumption recovery remains constrained by falling home prices and subdued wage growth, says Reuters.

Deflationary pressures also persist. Nominal GDP growth slowed to 3.7% in Q3, the weakest since late 2022, marking the 10th consecutive quarter of falling economy-wide prices - the longest deflation streak in decades.

3. Trade and structural risks

Renewed trade tensions with the United States are also weighing on China's export-reliant economy.
Higher U.S. tariffs and growing geopolitical uncertainty have prompted many exporters to seek new markets, but the transition remains uneven.

Economists say China faces a structural challenge: rebalancing away from manufacturing and exports toward domestic consumption. Excess competition and deflation are already eroding corporate profits, making the shift more urgent but harder to execute.

Policy outlook

Beijing's next steps are likely to emerge from a series of high-level policy meetings, including ongoing discussions on the 15th Five-Year Plan (2026–2030) and the upcoming Central Economic Work Conference in December.

Officials have signaled plans to boost high-tech manufacturing and invest more heavily in education and employment, but concrete measures to spur household consumption remain limited.

Analysts expect the government to continue relying on the "old economy" for stability. Real estate still accounts for roughly 18% of local government revenue and about half of household wealth, making a rapid shift away from the sector difficult.

In the medium term, Beijing is expected to focus on cleaning up the property sector's debt overhang and improving the effectiveness of macroeconomic policies aimed at stabilizing jobs, enterprises, markets, and expectations.

China's path to achieving its 5% growth target remains technically achievable - but increasingly fragile.

Strong exports and industrial activity have offset some domestic weakness, yet the slowdown in investment, persistent deflation, and structural imbalances highlight the challenges of sustaining momentum without deeper reforms.

As one Beijing-based economist put it: "China may still hit the number this year - but the harder question is how it sustains growth next year and beyond."