China's economic transformation gains momentum

Editor's note: Michael Wang is a CGTN anchor.

China's economy grew 4.5% in the third quarter, accelerating from 4.3% in the previous quarter and bringing growth for the first nine months to 4.6%. That puts the world's second-largest economy on track to achieve its full-year growth target of 4.5 to 5%, despite a challenging global environment.

But beyond the headline GDP figure, the changing foundations of China's economic growth have become clearer.

According to preliminary estimates from China’s National Bureau of Statistics (NBS), new growth drivers, including advanced manufacturing, the digital economy and modern services, accounted for more than 40% of China's economic growth in the first three quarters.

That is a significant figure. It suggests that China's economic transformation is not just about investing in future industries. Those industries are already making a substantial contribution to growth today.

High-tech manufacturing output rose 14.3% year on year in the first nine months, while industrial robot production increased 29.1%. Even as overall fixed-asset investment declined amid the continuing adjustment in the property sector, investment in equipment and machinery rose 9.7%, while investment in intellectual property products increased 9.3%.

These figures underscore the distinction between the quantity and quality of where China's investment is heading. A decline in aggregate investment does not mean that all forms of investment are weakening. China's economy is undergoing a necessary adjustment away from property-related expansion, as capital continues flowing into more productive assets.

Artificial intelligence offers a clear illustration of this ongoing transformation.

Much of the global discussion about AI focuses on the race to develop increasingly powerful models. But the economic significance of all this investment in AI ultimately depends on what businesses and consumers can do with it.

In China, AI is increasingly moving beyond labs and into factories, production lines, business services and consumer products.

In the first three quarters, the manufacture of electronics, computers and other digital products contributed more than one-third of China's industrial growth among major enterprises. Meanwhile, production of equipment that helps factories automate and control their operations rose by roughly 25 to 30%, illustrating how digital technologies are increasingly being put to work on China's factory floors.

Meanwhile, investment in electronic circuit manufacturing surged 58.7%, reflecting growing demand for the technologies and infrastructure associated with digitalization and AI. China is not only creating new industries, but also making traditional industries more productive.

China's industries are not just becoming more technologically advanced. They are also learning to produce more with less energy. In the first three quarters, energy consumption per unit of industrial value added among major enterprises declined 4.3%. Against a backdrop of volatile international energy prices, using less energy to generate economic output strengthens competitiveness while reducing exposure to external shocks.

And that brings us to consumption.

Much of the external debate surrounding China's economy frames industrial production and domestic consumption as competing priorities. The argument is that China has become exceptionally good at producing goods but needs to devote more attention to encouraging its households to spend. Domestic demand does remain relatively softer compared to production and stronger household consumption is essential to achieving more balanced growth.

Strengthening domestic demand is therefore a key stated priority for Chinese policymakers.

But treating production and consumption as opposing forces risks overlooking the relationship between them.

Productive investment can create jobs, raise incomes, improve efficiency and make goods and services more affordable. Higher incomes and lower prices, in turn, can expand household purchasing power. Stronger consumption then creates demand for businesses to invest, innovate and expand. In other words, production and consumption can and should reinforce each other.

China's industrial strength offers a particular advantage at a time when geopolitical tensions and energy costs are putting pressure on consumers in many parts of the world. That advance is affordability.

Economies of scale, technological improvements and relatively stable domestic energy prices help businesses based in China to produce increasingly sophisticated goods at competitive prices.

For Chinese households, the benefits are seen in the greater stability of their purchasing power despite inflationary pressures elsewhere.

Consumer prices rose at a stable 0.9% in the first three quarters, while core inflation, which excludes food and energy, stood at 1.1%. Over the same period, real per capita disposable income increased 4.4%. This combination of modest inflation and rising real incomes provides a foundation for stronger consumption.

Indeed, China's consumption story is more nuanced than aggregate retail figures suggest.

Retail sales of services grew 5% in the first nine months, outpacing goods retail sales by 4 percentage points. Spending on tourism, cultural experiences, sports and leisure activities has been particularly strong.

This points to an important evolution in China's consumer market. As incomes and living standards improve, households increasingly demand not only more goods, but also better experiences, greater convenience and a wider range of services.

That does not mean physical consumer goods are becoming less important.

China has set an ambition to expand annual retail sales of consumer goods from roughly 50 trillion yuan in 2025 to around 60 trillion yuan by 2030. For businesses ranging from family-owned enterprises to major multinational corporations, the potential scale of this market remains considerable.

China's growing role as a global buyer is also evident in its imports, which rose 22.3% in the first three quarters, with growth exceeding 20% in each quarter. According to the NBS, the increase reflected both higher import volumes and prices. The breadth of China's import demand illustrates the opportunities its economy creates for suppliers and businesses around the world.

For decades, China has been known as the world's factory. But its importance to the global economy increasingly lies in its dual role as a major producer and a major buyer.

China's economic performance in the first three quarters demonstrates an ability to develop new sources of growth while navigating a structural transition at home and facing uncertainties abroad.

New industries are contributing an increasingly significant share of economic expansion. Artificial intelligence continues to find practical applications across the real economy. Industrial production is becoming more technologically sophisticated and energy-efficient. And the consumer market is evolving toward a broader mix of goods, services and experiences.

Taken together, these developments suggest that China's next stage of economic growth is not a binary choice between producing more and consuming more. It is to ensure that improvements in productive capacity translate into greater household prosperity and that stronger household demand, in turn, supports continued innovation and investment.