Quick overview

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China’s economy started 2026 on stronger footing than expected. Data released Monday by the National Bureau of Statistics (NBS) showed an acceleration in industrial production and a rebound in consumption and investment during the January–February period.

While the figures provide some relief for President Xi Jinping’s government, the ongoing real estate downturn and rising unemployment continue to cloud the broader outlook. Uncertainty stemming from the war in the Middle East is also adding pressure due to China’s heavy dependence on energy imports.

Industrial production rose 6.3% year over year, above the 5.2% recorded in December and the 5% expected by market analysts. It was also the fastest pace of expansion since September of last year. The momentum was partly driven by strong demand linked to artificial intelligence, which has boosted activity across several industries within the technology supply chain.

ING Group chief economist Lynn Song said the data “continue to reflect China’s key strategy of industrial modernization.” High-tech manufacturing expanded 13.1% year over year, with industrial robotics production surging 31.1% at the start of the year. The computer and communications sector (14.2%) and transportation equipment — including rail, maritime and aerospace — (13.7%) also posted solid growth.

Rebound in consumption and investment

Retail sales — a key gauge of domestic consumption — increased 2.8% year over year, accelerating sharply from December’s weak 0.9% reading and surpassing the 2.5% expected by analysts. It marked the strongest rise since October. Part of the increase was linked to the Lunar New Year holiday, which this year lasted longer than usual and boosted tourism spending by nearly 19% compared with the same period last year.

Meanwhile, fixed-asset investment — which includes property and infrastructure — also surprised to the upside, rising 1.8% in the first two months of the year. Economists had expected a contraction of 2.1% following the 3.8% decline recorded in 2025, the first drop in nearly three decades.

Infrastructure investment led the recovery with an 11.4% increase, supported by government policies including a new bank financing instrument aimed at funding strategic projects.

Middle East tensions add uncertainty

Fu Linghui, spokesperson for the NBS, acknowledged during a press conference that the war in the Middle East has increased volatility in global oil markets. However, he said China’s energy supply structure should help cushion the economy against external shocks. Even so, he warned that the conflict’s impact on domestic prices will require closer monitoring in the coming months.

Zichun Huang, an analyst at Capital Economics, noted that “while China is better positioned than most economies to cope with the consequences of the war with Iran, the annual budget presented at the National People’s Congress suggests fiscal policy will provide less support to the economy in 2026 than in 2025, which will likely weigh on growth toward the end of the year.”