China said Monday that its economy expanded 4.5% in the July-September quarter from a year earlier, powered by robust exports — a reading that moves Beijing closer to its official annual growth target as the year nears its end, and one that lands at a time when trading partners feel mounting urgency about balancing their trade deficits with the country.

The better-than-expected official data marked an acceleration from the 4.3% year-on-year growth recorded in the April-June quarter, which had been the slowest expansion in more than three years.

For the full year, Chinese leaders have set a growth target of 4.5%-5%, down from last year's 5% expansion. Earlier this month, the International Monetary Fund trimmed its forecast for China's 2026 growth to 4.5% — right at the lower end of Beijing's goal. With the final quarter of the year now underway, the months remaining will determine whether the full-year figure lands inside that range.

Export Strength Lifts Growth, but Domestic Sluggishness Persists

The headline official growth figure is becoming “an increasingly poor indicator of how the broader economy is performing,” said Max Zenglein, Asia Pacific senior economist at The Conference Board.

That is because it masks “widening disparities across industries, regions, and households,” Zenglein said. Beijing faces difficult trade-offs, and managing domestic imbalances may prove more challenging than dealing with external pressures, he added.

China's domestic demand has weakened, weighed down by a yearslong downturn in its property market that has squeezed household wealth and driven up savings.

Still, with strong exports among the few bright spots, China is on track to surpass last year's record $1.2 trillion trade surplus globally, after logging 36% growth in exports last month and a $938 billion surplus between January and September.

Elevated U.S. tariffs have hit some U.S.-China bilateral trade and forced China to look elsewhere, including Southeast Asia, Latin America and Europe. High-tech exports such as semiconductors, along with autos — including hybrid and electric vehicles — are among the areas driving export growth this year.

As China pursues self-sufficiency to help shield itself from Western export controls and trade uncertainties, it has built up massive domestic manufacturing capacity across industries such as solar and electric vehicles, both heavily subsidized by the government. But output was scaled up rapidly at a time of weakened domestic consumption, so many of these goods are shipped to overseas markets at highly competitive prices.

An export-reliant growth model that is highly tech-driven has shown limited job creation and broad income gains, while the risks of artificial intelligence-driven labor displacement continue to grow, said Ecaterina Bigos, senior market strategist at BNP Paribas Asset Management.

China Faces Growing Pressure From the EU to Rebalance Trade

For many of its trading partners, the surge of lower-cost Chinese manufactured imports poses a growing threat to domestic industries and economies.

“It is untenable and unsustainable for the world’s second largest economy to rely on foreign demand to prop up its own growth,” said Eswar Prasad, a professor of economics and trade policy at Cornell University. Through its persistent and large trade surpluses, China “has become a drag on world growth rather than an engine that pulls the rest of the world along,” Prasad said.

The European Union is among those impatient to shrink its trade imbalance with China. The 27-nation bloc runs a trade deficit with China of more than $1.1 billion a day, and in the first nine months of the year, Chinese exports to the EU were up 16%.

EU countries are eyeing more curbs on China after the bloc reached an agreement with Beijing this month to roughly halve the number of Chinese hybrid vehicle imports over the next few years. How that deal is implemented — and whether the additional curbs under consideration move forward — will be among the clearest markers of the bloc's trade posture toward Beijing heading into next year.

China can work with other countries on disputes and it wants to keep its market access, said Gary Ng, a senior economist for Asia Pacific at French bank Natixis. With the EU deal on hybrid cars, for example, China can likely still sell more made-by-China products to those economies over the longer run while avoiding a broad tariff hike.

Even with agreements in place between China and the EU, “trade imbalances will be difficult to resolve quickly,” said Lynn Song, chief economist for Greater China at Dutch bank ING.

Policymakers have also argued that an undervalued yuan, China's currency, against the dollar and the euro has contributed to the country's growing trade surplus, even though China's central bank has dismissed the claims.

“We are likely to see continued resistance, rising protectionism, and persistent pressure from economies globally to protect their industries, and jobs, notably in high value sectors,” Bigos noted.

Beijing has insisted that China does not seek a large trade surplus. On Friday, China's central bank governor Pan Gongsheng said countries with trade deficits and those with trade surpluses should work together, and that China, as a responsible country, has been committed to expanding domestic demand. Whether that push gains traction at home — the imbalance Zenglein flagged as the tougher of Beijing's challenges — now stands alongside trade friction as a defining issue for the final stretch of the year.

This story was originally featured on Fortune.com.