FirstFT: China’s economic growth exceeds expectations despite Iran war
April 16, 2026
Also in today’s newsletter: Israel agrees to ceasefire in Lebanon, and Netflix founder to step down from board
China's economy expanded by 5 percent in the first quarter of 2026, a pace that exceeded analyst expectations and accelerated from the 4.5 percent growth seen in the final three months of 2025. The robust performance, announced by the National Bureau of Statistics, came as a surprise to many observers, given the significant global economic headwinds stemming from the ongoing conflict in Iran. The data suggests that the world's second-largest economy got off to a solid start for the year, demonstrating resilience against external shocks that have driven up energy prices and created widespread uncertainty.
The growth was largely propelled by strong industrial output and resilient export performance. Value-added industrial output grew 6.1 percent from a year earlier, with high-tech manufacturing showing particular strength. Exports, a key engine for the economy, surged in the first quarter, helping to offset some weaknesses in domestic demand. Concurrently, fixed-asset investment returned to positive growth, reversing a decline from the previous year as the government stepped up spending on infrastructure. Together, domestic consumption and investment accounted for the vast majority of the economic expansion, according to official sources.
Despite being the world's largest energy importer, China has so far managed to absorb the initial economic impact of the war with limited disruption. This resilience is attributed to a combination of factors, including the use of large strategic oil reserves, a diversified energy mix that includes coal and a rapidly expanding renewables sector, and state controls that help contain price volatility. While global oil prices have surged, these buffers have provided a temporary shield, allowing the nation's manufacturing sector to maintain its momentum as a primary anchor for growth.
However, the recovery appears uneven, with persistent weakness in consumer activity and the property sector. Retail sales growth slowed in March, indicating that domestic consumer confidence remains cautious. The urban unemployment rate also climbed to a 13-month high, while the prolonged downturn in the real estate market continues to drag on the broader economy. This imbalance between strong industrial production and modest domestic demand is a point of concern for economists, who note that the strong GDP figures have not translated into proportionally higher income growth for average citizens.
Looking ahead, while the strong first-quarter data puts China on a path to meet its annual growth target of 4.5 to 5 percent, significant challenges remain. Economists and international bodies like the IMF warn that a prolonged conflict in the Middle East could severely dampen global demand, which would, in turn, hurt the exports that have been crucial to China's recent performance. For now, Beijing is expected to hold off on major new stimulus measures, though it will likely maintain policy flexibility to support the economy should the external environment deteriorate further.
Source: financialtimes