China's economy expanded by 5% in the first quarter of this year compared to the same period last year, official data revealed on Thursday. The growth figure exceeded economists' expectations and accelerated from the 4.5% growth recorded in the final quarter of 2025.
The January-to-March period encompassed the early weeks of the Iran war, yet China has so far largely shrugged off its impact. The conflict has pushed energy prices higher and worsened global inflation, but economists believe China can weather short-term disruptions. However, a protracted war could dent global demand for Chinese exports later this year.
The International Monetary Fund this week lowered its 2026 growth forecast for China to 4.4%. Chinese leaders have set an annual growth target of 4.5% to 5%, the slowest since 1991. Lynn Song, chief economist for Greater China at ING, noted that while short-term effects are manageable, a prolonged war and sustained high energy prices would likely begin to hurt growth by the second half of the year.
China's economy has been dragged by a prolonged real estate slump, but robust exports powered a record trade surplus of nearly $1.2 trillion last year despite US tariffs. March export growth slowed to just 2.5% year-on-year, down from the previous two months. Eswar Prasad of Cornell University warned that shrinking global appetite for Chinese imports could intensify as countries focus on protecting their own economies from the Iran war fallout.
Economists say China can likely achieve its 2026 growth target through policy stimulus, but risks remain. A boost in public investment might stabilise headline growth but, without stronger household demand, could worsen deflationary pressures and increase reliance on exports in the long run.
