China's economy grows thanks to AI export boom, despite domestic slump

China's economy demonstrated accelerated growth in the third quarter of 2026, expanding by 4.5% year-on-year, a slight improvement from the previous quarter's 4.3% and surpassing many analysts' expectations. This performance places the country on track to achieve the lower end of its annual growth target of 4.5% to 5%. A significant driver of this economic uptick was a robust boom in artificial intelligence-related exports, including a substantial surge in shipments of integrated circuits and other high-tech components.

Despite the strong export sector, the domestic economy continues to face considerable challenges. A prolonged downturn in the housing market, now in its fifth year, remains a significant drag on growth, with property investment seeing a notable decline in the first three quarters. Additionally, weak household consumption and sluggish private investment persist, contributing to an overall "two-speed economy" where a thriving export engine contrasts with subdued internal demand.

Furthermore, China's increasing reliance on exports, particularly high-tech goods, is intensifying trade tensions with key international partners, including the European Union and the United States. These nations are seeking to rebalance trade relationships amidst China's growing surplus, which is on course to exceed previous records. While the AI-driven export momentum provides a crucial buffer for the economy, concerns remain regarding the potential impact of escalating trade barriers and any future slowdowns in global AI investment.