Quick overview

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China’s economy expanded 5% year-on-year in the first quarter, according to official data released Thursday, exceeding the 4.8% growth forecast by economists surveyed by Agence France-Presse.

The figures come at a time when the global economy is being affected by the war in the Middle East.

China’s economy had grown 4.5% year-on-year in the fourth quarter of 2025. Meanwhile, retail sales—China’s main gauge of consumer demand—slowed more than expected in March, rising only 1.7% from a year earlier, according to the National Bureau of Statistics of China.

Economists surveyed by Bloomberg had expected retail sales to increase 2.4%. Industrial production, however, rose 5.7% year-on-year in March, above the 5.3% forecast, though still below the 6.3% growth recorded in January and February.

China warns of a “complex and volatile” environment

Mao Shengyong, deputy director of the National Bureau of Statistics, warned that the international environment will remain “complex and volatile” in the coming period, citing growing uncertainty and hard-to-predict risks, particularly stemming from the war involving Iran and its effects on financial markets and the global outlook.

Similarly, Zhou Hao, analyst at Guotai Haitong Securities, said the manufacturing sector remains a key pillar of short-term growth, though he expects policymakers to increasingly focus on boosting domestic demand and reflation.

The challenge for authorities remains significant: even China is not immune to rising energy and transportation costs, which are eroding purchasing power and weighing on economic momentum.

From the private sector, Peng Xin, director of an industrial firm in southern China, described the impact of the crisis. Volatility in energy prices has turned each transaction into a new negotiation, while customers are accelerating purchases and building inventories in anticipation of further price increases.

“If someone used to buy five tons, now they may want ten,” he said, noting a temporary surge in production and shipments.

Exports slow but remain strong for the quarter

On the external front, exports grew just 2.5% year-on-year in March, a sharp slowdown from the 21.8% surge recorded in January–February, reflecting higher energy and transport costs as well as weaker global demand.

However, exports rose 14.7% year-on-year for the entire quarter, far exceeding the growth recorded in 2025.

For many analysts, this highlights a two-speed economy: a resilient export sector alongside still-weak domestic demand.

At the same time, new signs of pressure are emerging. Factory-gate prices rose in March for the first time in more than three years, suggesting that higher energy costs are beginning to filter through the economy and squeeze corporate margins.

On a quarterly basis, GDP expanded 1.3% between January and March, in line with forecasts, while fixed-asset investment slowed to 1.7%, indicating some moderation after the earlier boost from infrastructure spending.