Other BriefingsChina’s Economy Begins Year on Strong Footing – But Will Momentum Hold?
China’s economy in 2026 has opened the year with accelerating industrial output, surging foreign trade, and continued high-tech investment, even as domestic consumption remains subdued and private and foreign investment continue to decline. Policymakers have signalled continuity, with expansionary fiscal policy and an accommodative monetary stance set to support growth through the year.
China’s economy has come out of the gates strongly in 2026, with a raft of key indicators accelerating after a slowdown in the closing months of last year. Industrial and manufacturing output picked up pace, while foreign trade climbed to its strongest monthly growth in years. Across the board, high-tech sectors continued to drive growth, reflecting China’s sustained push up the value chain.
However, modest gains in domestic demand, as well as declining private and foreign investment, point to continued caution in some areas of the economy. With policymakers signalling continuity in their support measures for 2026, the question is whether the strong start to the year can be sustained as the full impact of global trade tensions has yet to show up in the data.
Manufacturing output rebound driven by high-tech soars
Industrial Output in January and February 2026 Industrial value added: Key industries (Jan–Feb): By entity type (Jan–Feb):
China’s industrial and manufacturing output signals a strong start to the year, with industrial value added, China’s monthly gauge of industrial sector activity, growing 6.3 percent year-on-year in the first two months, accelerating 1.1 percentage points from December. Meanwhile, manufacturing value added, which largely tracks the total industrial trajectory, accelerated from late-2025, growing 6.6 percent in the first two months of the year from the same period in 2025.
However, China’s official manufacturing Purchasing Managers’ Index (PMI) indicated a more cautious trend, contracting a further 0.3 percentage points from January to February to reach 49 percent. While this deepening contraction could be the impact of the Chinese New Year holiday on industrial activity, it is also a continuation of a contraction in the industry dating back to early 2025, with the exception of a brief uptick in December 2025 when the PMI reached 50.1 percent.
Key manufacturing sectors, particularly electronics, have carried strong momentum into the new year, with value added of electronics manufacturing climbing 14.2 percent year-on-year in the first two months, indicating robust sector activity and demand.
Pharmaceutical manufacturing, meanwhile, has recorded three months of accelerated growth, with value added increasing 7.2 percent in the January to February period, solidifying its recovery following a slump in October and November 2025. Growth in the automotive manufacturing sector cooled, with value added slowing to 3.4 percent year-on-year growth in January and February from 8.3 percent in December.
High-tech manufacturing continued to significantly outperform traditional sectors, with several products recording double-digit growth in the first two months of 2026, including:
- 3D printing equipment: 54.1 percent year-on-year
- Lithium-ion batteries: 42.6 percent year-on-year
- Industrial robots: 31.1 percent year-on-year
Key takeaways
The January to February manufacturing data paints a broadly positive but uneven picture. Sector output has accelerated, driven in particular by strong performance in electronics and high-tech. However, the PMI’s second consecutive month of contraction suggests that conditions across the broader manufacturing base remain soft. This points to a diverging manufacturing economy, with priority and export-oriented industries pulling ahead of traditional sectors. For businesses and investors, China’s changing manufacturing landscape will present more opportunities in advanced and higher-value fields, while traditional, lower-value manufacturing faces an increasingly challenging environment.
Consumption sees modest recovery but remains subdued
Consumption of Goods and Services in January and February 2026
Consumption as measured by retail sales picked up in the first two months of the year, boosted by the Chinese New Year holiday. Retail sales reached a total of RMB 8.61 trillion (US$1.25 trillion), growing 2.8 percent from the same period in 2025, an acceleration of 1.9 percentage points from December.
However, given the seasonal boost provided by the Chinese New Year holiday, this represents only a modest recovery and may not be sustained in the coming months. Retail sales grew just 0.8 percent from January to February.
Online sales significantly outpaced the overall growth trajectory, with online sales of goods rising 10.3 percent year-on-year, in part reflecting elevated Chinese New Year activity.
A more granular breakdown reveals a clear divergence between categories. Sales of staple goods recovered strongly while big-ticket items grew at lower rates or declined outright. In the January to February period, food, beverages, alcohol, and tobacco grew 11.8 percent year-on-year, while apparel and footwear rose 10.4 percent.
This is likely driven in large part by the Spring Festival, with the holiday season driving spending on food and clothing while deferring big-ticket purchases. Nonetheless, the strength of staples growth points to stronger consumption than in the same period in 2025.
Big-ticket categories, by contrast, were more subdued. Sales of vehicles and related products, which have been weak or declining since mid-2025, fell 7.3 percent year-on-year, deepening the 5 percent decline recorded in December. Home appliances offered a partial bright spot, reversing a significant decline across the final three months of 2025 to grow 3.3 percent year-on-year in January and February.
Key takeaways
While the start of 2026 paints a rosier picture, domestic demand and consumption continue to be a weak point in the Chinese economy. The impact of Chinese New Year seasonal spending makes it difficult to assess the underlying trajectory with confidence, and the uptick may be short-lived, save for the issuance of further consumption vouchers or subsidies in the coming months.
March and April data may provide a clearer read on whether the recovery has genuine momentum or whether the January to February figures hide an otherwise soft consumer environment.
Foreign trade surpasses US$1 trillion as electronics exports soar
Foreign Trade in January and February 2026 (Combined)
In the January to February period, total two-way trade reached US$1.1 trillion, up 21 percent year-on-year in US dollar terms. In February alone, foreign trade climbed 27.7 percent year-on-year, the highest monthly growth rate recorded since August 2021.
Exports surged 21.8 percent year-on-year in the first two months, with imports almost matching this growth at 19.9 percent. Exports to Southeast Asia and developing nations offset a continued decline in exports to the US. Exports to ASEAN countries, China’s largest trading partner, grew 29.4 percent year-on-year to reach US$112.6 billion, with exports to Vietnam alone climbing 26.4 percent year-on-year to US$31.2 billion.
Shipments to other developing economies also posted strong gains, with exports to Africa climbing almost 50 percent year-on-year, a strong indicator of China’s deepening trade ties with the Global South and its strategy of diversifying export markets away from the US amid ongoing geopolitical tensions.
Foreign trade continues to be dominated by electromechanical and high-tech products, as well as automobiles, solar cells, and lithium-ion batteries. China’s top export categories all saw rapid growth in the first two months, with electromechanical equipment growing 43.0 percent year-on-year. Exports of integrated circuits soared 66.6 percent year-on-year, reflecting strong global demand driven by the AI build-out. Exports of the “new three” products – solar cells, lithium-ion batteries, and electric vehicles – grew 53.3 percent year-on-year, underscoring China’s entrenchment as the dominant global supplier in clean energy and advanced manufacturing.
| China’s Top Exports in January and February 2026 (Value in USD) | ||||
| Product | Feb 2026 | YoY growth (%) | Jan-Feb 2026 (cumulative) | YoY growth (%) |
| Electromechanical products, of which: | 188,647,354,000 | 43.9 | 410,909,276,000 | 27.1 |
| Electronic components | 28,337,976,000 | 50.5 | 61,048,829,000 | 51.5 |
| Integrated circuits | 20,409,702,000 | 66.6 | 43,324,393,000 | 72.6 |
| Electrical equipment | 18,217,920,000 | 55.4 | 39,393,757,000 | 35.8 |
| Automatic data processing equipment and its components | 17,306,180,000 | 24.1 | 36,457,397,000 | 20.6 |
| High-tech products, of which: | 77,286,587,000 | 30.4 | 167,230,072,000 | 26.9 |
| Computers and communication technology | 36,767,353,000 | 16.4 | 79,916,468,000 | 13.9 |
| Electronic technology | 27,718,453,000 | 53.3 | 59,297,267,000 | 53.6 |
| Three new products (solar cells, lithium batteries, and electric vehicles) | 15,892,964,000 | 74.4 | 33,345,768,000 | 54.5 |
| Automobiles (including chassis) | 12,740,129,000 | 81.2 | 26,976,872,000 | 67.1 |
Key takeaways
China’s strong trade performance in the first two months of 2026 underscores that global demand for Chinese manufacturing, particularly electronics, high-tech products, and clean energy goods, remains exceptionally strong. Chinese exporters are also demonstrating meaningful diversification, successfully developing alternative markets across Southeast Asia and Africa, even as the US remains China’s largest single-country trading partner, suggesting the trade base is becoming more resilient to bilateral tensions.
While China’s foreign trade is off to a very strong start in 2026, the disruption to supply chains and energy markets stemming from the conflict in the Middle East could present significant headwinds to Chinese exporters in the months ahead. How much of an impact it will have remains unclear, but companies manufacturing in China for export or otherwise exposed to China’s trade flows should stay alert to how the situation develops and factor potential risks and uncertainty into near-term planning.
Fixed asset investment reverses decline as capital flows into high-tech sectors
Investment in January and February 2026
Fixed asset investment (FAI), which measures spending on fixed asset projects above a certain threshold, grew 1.8 percent year-on-year in the January and February period, reversing a months-long decline that began in mid-2025. This reversal indicates renewed investment activity but may also reflect increased state backing for key projects.
Total FAI continued to be dragged down by the real estate slump, with FAI in this sector sliding 11.1 percent year-on-year in the first two months of the year.
FAI in infrastructure saw robust growth, up 11.4 percent year-on-year, suggesting the uptick is partly driven by major state-backed projects. The high-tech sector was another significant recipient of investment, with FAI up 5.1 percent year-on-year. FAI in certain high-tech fields was particularly strong, including aviation, spacecraft, and equipment manufacturing (up 20.2 percent), R&D and design services (up 20.6 percent), and information services (up 16.5 percent year-on-year).
Meanwhile, private investment declined 2.6 percent year-on-year, continuing a sustained contraction dating back to June of last year, suggesting the headline recovery reflects policy stimulus rather than a broadening of investment confidence.
FDI continues decline, but high-tech sectors buck the trend
Although the number of newly established foreign-invested enterprises increased by 14 percent year-on-year in the first two months of 2026, actual use of foreign capital continued to decline, sliding 5.7 percent, according to data from the Ministry of Commerce (MOFCOM). In 2025, actual use of foreign capital declined 9.5 percent year-on-year, continuing a slump dating back three years. This decline was seen across major investment categories, with foreign capital into manufacturing declining 0.6 percent year-on-year and services seeing a steeper 7.7 percent decline from the first two months of 2025.
High-tech sectors were a notable exception, with foreign capital climbing 20.4 percent year-on-year to RMB 63.2 billion (US$9.19 billion), accounting for almost 40 percent of total actual use of foreign capital in the first two months of the year, and 8.5 percentage points faster than in the same period in 2025.
Key takeaways
The uptick in investment from multiple different sources, including FDI, into the high-tech sector is a clear sign of where the trajectory is going, with firms choosing to expand their positions in China increasingly concentrating investment in technology, R&D, and advanced manufacturing.
Meanwhile, while the recovery in FAI, combined with strong industrial and manufacturing output, points to genuine momentum on the supply side of China’s economy, the continued decline in private and foreign investment indicates companies are still lacking confidence in the broader economic outlook.
Policy outlook
On the back of a strong start to the year, China’s policymakers have largely signalled policy continuity over the next year. The 2026 Government Work Report released at the Two Sessions in early March set a GDP growth target of 4.5-5 percent, reflecting both ambition and a pragmatic acknowledgement of external uncertainty, particularly from ongoing trade tensions and supply chain disruptions.
Fiscal policy will be the most expansionary in years, with the effective scale of fiscal support reaching nearly RMB 12 trillion (US$1.74 trillion) when including special bonds and other instruments, with spending increasingly directed toward consumption and social investment rather than traditional infrastructure. This could lead to increased domestic demand and better performance of consumption and investment indicators.
Meanwhile, monetary policy has shifted to “appropriately accommodative”, which signals that rate cuts and reserve requirement reductions are likely in the months ahead.
This policy mix suggests a continued prioritization of high-quality, stable growth over speed, with policymakers focusing on boosting domestic demand, technological innovation, and household income as a means of sustaining growth in 2026.
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