A volatile week behind, China's growth increasingly dependent on exports
Summary
- Last week, US consumer, producer, and import prices rose faster than expected, yet government bond yields fell, with the probability of a Federal Reserve rate hike in October dropping below 20% and a December hike at around 90%.
- China's GDP grew by 4.5% year-on-year in Q3, with exports increasing by 36.3% in September, highlighting the country's growing reliance on exports for economic growth.
- Despite strong export performance, China's domestic economy faces challenges, with real estate investment contracting by 20.6% and retail sales growing by only 1.1% in September.
- China's economic growth is increasingly dependent on foreign trade, raising tensions with trading partners, and current stimulus measures may not address underlying structural issues.
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Automatic translation: Originally published in Finnish 19/10/2026, 04:52 GMT. Give feedback here.
Last week was a peculiar one in the European and US stock markets. US consumer, producer, and import prices rose faster than expected, but government bond yields still fell. According to market expectations, the probability of a Federal Reserve rate hike in October fell to below 20 percent, while a December hike trades at a probability of around 90 percent.
| Indexes | closing price | 1-week change | YTD | |
| OMX Helsinki | 13407,6 | -1,2 % | 8,0 % | |
| Eurostoxx 600 | 644,7 | 2,1 % | 8,9 % | |
| S&P500 | 7658,4 | -2,0 % | 11,9 % |
The sell-off in tech stocks continued, weighing on the indices: the Nasdaq fell by 4.5% over the week and the S&P 500 by 2%, whereas European stock exchanges ended in positive territory for the Dow Jones. Brent crude touched USD 110 per barrel, and France's spread over German bonds remained at 130–140 basis points. The riots in France are one indication of dissatisfaction with the government's administration and the increased cost of living.
China's exports grew by a third
Hopeful economic growth data was published in China this morning. The country's GDP grew by 4.5% year-on-year in Q3. In the previous quarter, growth was 4.3%, which was the slowest since 2022. Growth is currently at the lower end of the government's target range of 4.5–5% and largely dependent on exports. In September, exports grew by 36.3% year-on-year, with growth of 40% to the United States and 25% to Europe. The trade surplus has already risen to USD 938 billion in the first nine months, and the full-year surplus is on track to surpass last year's record of USD 1,190 billion.
China: Exports, growth % year-on-year, 3-month moving average
Source: LSEG
I wrote in June that China's export engine is accelerating, driven by the AI boom. In May, exports of integrated circuits more than doubled. According to Fed research, China's trade surplus has exceeded one percent of global GDP, more than Japan or Germany ever did. The same trend is continuing, as semiconductor exports have grown by 108% this year.
China: Fixed investments, 12-month change, cumulative
Source: LSEG
Instead, the domestic economic picture continues to dim, according to the WSJ. Real estate investment contracted by 20.6% in January–September, and fixed investment decreased by 7.2%. The decline in housing prices continues to eat away at household wealth and curb consumption. Retail sales grew by only 1.1% in September, and youth unemployment remains high. According to data collected by Capital Economics using alternative methods, China's economy grew by only 2% in the third quarter.
China's growth is increasingly dependent on foreign trade, which increases friction with trading partners. The autumn stimulus measures, such as mortgage subsidies, recapitalizations of state-owned banks, and infrastructure investments, will barely be enough to achieve the growth target. However, they do not fix the structural problem. If AI investments falter, China's most important engine of growth will stutter.
