Other BriefingsChina’s GDP Grows 5% in Q1 2026 in Show of Resilience
China’s Q1 2026 GDP growth exceeded forecasts despite rising energy prices and supply chain disruptions stemming from the Iran war. Strong industrial output and a surge in exports drove the outperformance, though weak domestic consumption and lingering global uncertainty cloud the outlook for the rest of the year.
China’s economy has started the year strong, with GDP growth exceeding forecasts despite concerns over the negative impact of the energy and supply chain crisis.
Data from the National Bureau of Statistics released on April 16 show a 5 percent year-on-year expansion in the first quarter, reversing the downward trend recorded in the latter half of 2025. This acceleration, which comes in spite of increasing supply chain volatility and a sharp rise in energy prices, can be attributed to strong industrial growth and a surge in exports in the first two months of the year, as well as expanded fiscal spending.
High-tech and advanced industrial sectors were key drivers of growth, with strong exports contributing to domestic output, while weak domestic demand and sluggish growth in certain traditional sectors weighed on the overall activity.
China has targeted a GDP growth rate of between 4.5 and 5 percent for the full year 2026. While the current picture is relatively rosy, consumption and inflation indicators highlight persistent challenges that may be exacerbated by increased input costs as a result of the Iran war, squeezing revenue margins, and placing more pressure on household incomes. These potential headwinds could slow the economy in the rest of the year, unless circumstances change or further stimulus is implemented.
China’s Q1 2026 Economy in Numbers
Industrial output maintains upward trend, driven by high-tech and advanced manufacturing
China’s industrial value added grew 6.1 percent year-on-year in the first quarter, accelerating 1.1 percentage points from the last quarter of 2025. Industrial revenue (measured from companies with a main annual business income of over RMB 20 million/US$2.9 million) surged 15.2 percent year-on-year to RMB 1.02 trillion (US$149.5 billion).
In March, industrial value added grew 5.7 percent from 2025, accelerating 0.28 percent from February.
The strong momentum was driven by a 6.4 percent year-on-year increase in manufacturing output, with equipment and high-tech manufacturing growing 8.9 percent and 12.5 percent year-on-year, respectively.
Auto manufacturing output, which had slowed in the first two months of the year, recovered momentum with a 7.5 percent uptick in March. Other traditional sectors, such as electronics, pharmaceuticals, and transport equipment manufacturing, cooled slightly in March but continued to post robust output figures.
Some green and heavy industrial sectors saw declines in output in the first quarter. The volume of crude steel fell 4.6 percent year-on-year in the first quarter, while steel products output fell 1.7 percent. Some green manufacturing sectors, which have also been plagued by overcapacity, saw similar trajectories, with solar cell production falling 12.4 percent year-on-year in power capacity terms.
Private company output for the first quarter continued to outpace that of public companies, with value added reaching 6.1 percent year-on-year growth, 2.2 percentage points faster than state-owned companies. Foreign company value added grew 3.9 percent from the same period in 2025.
How to Read the Data The Q1 data suggest industrial output is increasingly sustained by high-tech and advanced manufacturing sectors. Meanwhile, certain heavy and green industrial sectors experienced drops that could be signs of corrections to overcapacity, as well as an especially high base effect from surging output in the first quarter of 2025 in the case of solar cells. The growth in auto manufacturing output has been fueled by a huge surge in exports – up 58.5 percent in the first quarter – which offset a sustained drop in domestic sales. The slight slowdown in industrial output recorded in March compared to the January to February period could be the first inklings of the impact of the Iran war, which began at the end of February, as rising costs of fuel and other critical goods begin to make their mark on domestic capacity. However, this could also be the result of seasonal factors, such as the prolonged effects of the Chinese New Year holiday.
March factory gate inflation reverses 41-month decline
China’s March factory gate inflation grew 0.5 percent year-on-year, up from a 0.9 percent fall in February and overturning a sustained decline dating back to September 2022. The national industrial producer purchase price index (PPI) also went positive in March, increasing 0.8 percent year-on-year and 1.2 percent from February.
For the full first quarter of 2026, factory gate inflation fell 0.6 percent from the same period in 2025, while PPI fell 0.5 percent.
How to Read the Data Some analysts attribute the positive turn in factory gate inflation to the jump in the price of oil, warning that rather than an organic increase stemming from increased domestic demand, we may be seeing cost-push inflation that will put pressure on businesses and households. However, in a press briefing held for the release of the Q1 indicators, the Deputy Director of the National Bureau of Statistics, Mao Shengyong, stated that the uptick was primarily due to “further improvements to the domestic supply-demand relationship”, with increased automation and green industrial upgrades leading to an expansion in demand, in turn driving up prices. He cited sharp price increases in various manufacturing industries in March, including manufacturing of optical fiber, external storage devices and components, and electronic special materials. He added that efforts to control “involution” and maintain orderly market competition had achieved positive results in certain industries, contributing to the recovery of prices in industries that suffered from excess capacity and price cutting. For instance, in March, the prices of solar equipment components manufacturing and Li-ion battery manufacturing increased by 5.2 percent and 2.5 percent year-on-year, respectively. Mao did acknowledge that global prices also had some impact: in March, oil and gas mining industry prices grew 5.2 percent year-on-year, while non-ferrous metal mining industry prices rose 36.4 percent. It may be too early to assess the underlying cause of the reversal and whether this will be a sustained trend or a temporary rise.
Consumer prices see moderate uptick amidst sluggish consumption
In the first quarter, total retail sales of consumer goods reached RMB 12.77 trillion (US$xxx), up 2.4 percent from the same period in 2025. In March, total retail sales grew 1.7 percent from March 2025.
A sharp drop in sales of big-ticket items dragged on overall consumption. March retail sales excluding the sales of vehicles grew 3.2 percent year-on-year and 3.6 percent in the first quarter. Vehicle sales fell by 11.8 percent in March and 9.1 percent in the first quarter, while sales of home appliances remained flat in March and fell by 5 percent in the first quarter.
Lower-value goods saw higher consumption in the first quarter, an effect of the Chinese New Year holiday period that ran from mid-to-late February. Food and beverage sales increased 4.2 percent year-on-year, outpacing merchandise sales. The consumption of basic commodities also grew much faster, with sharp increases in sales of goods such as staple foods (up 10 percent year-on-year) and clothing and apparel (up 9.3 percent).
Services consumption was also more positive, increasing 5.5 percent in the first quarter, maintaining the same rate as in full-year 2025.
Consumer prices saw a moderate increase, with the consumer price index (CPI) inching up 0.9 percent in the first quarter, expanding 0.4 percentage points from the fourth quarter of 2025.
How to Read the Data China’s consumption has remained a thorn in the side of China’s policymakers since the COVID-19 pandemic, as a downturn in the property market prevented the kind of post-pandemic revival seen in other countries. Efforts to boost consumption – such as issuing consumption vouchers and other purchase subsidy schemes – have only had temporary effects. The decline in sales of big-ticket items points to the decline in the efficacy of these tools. The extension of the tax exemption policy for EVs until the end of 2027 and further subsidy schemes have not translated to sales of EVs, which fell 23.8 percent year-on-year in the first quarter. As with other areas of the economy, it is too early to assess what the impact of rising energy prices could be on household consumption. If China is unable to sustain the shock long-term as it has in the immediate aftermath of the crisis, sustained supply chain disruptions could increase the cost of key consumer goods, further driving down consumption.
Foreign trade soars in first two months but sees sharp slowdown in March
China’s foreign trade saw a bounce in the first quarter, with total two-way trade accelerating 18 percent to US$1.69 trillion. Of this, exports grew 14.7 percent and imports, which rarely outpace exports, surged 22.7 percent from the same period in 2025.
This momentum slowed sharply in March, with exports growing just 2.5 percent year-on-year. This was offset by a 27.8 percent spike in imports.
China’s top exports in the first quarter were electromechanical products and high-tech products, the latter of which include semiconductors, computers, and vehicles.
| Top exports | Top imports | ||||
| Commodity | Q1 value (USD billion) | Q1 growth (%) | Commodity | Q1 value (USD billion) | Q1 growth (%) |
| Electromechanical products*; of which: | 620 | 21.40 | Electromechanical products*; of which: | 281.02 | 24.9 |
| Semiconductors | 29.15 | 77.50 | Semiconductors | 128 | 45.0 |
| Computers and components | 23.93 | 26.70 | Computers and components | 35.74 | 49.5 |
| Vehicles, including chassis | 40.77 | 58.5 | High-tech products* | 231.53 | 29.2 |
| High-tech products* | 269.37 | 28.60 | Crude oil | 71.55 | -4.7 |
| Textile yarns, fabrics, and their products | 34.19 | 2.8 | Agricultural products | 49.29 | 11.0 |
| *May overlap with other data in the table. Source: General Administration of Customs |
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The export of semiconductors, vehicles, and ships saw particularly rapid growth, increasing 77.5 percent, 58.5 percent, and 48.7 percent, respectively, from the first quarter of 2025 in value terms.
China’s top imports were also electromechanical equipment and high-tech products, with the fastest-growing import product categories including rare earths (up 167.5 percent year-on-year), fertilizer (up 59.6 percent), and computers and computer components (up 49.5 percent).
How to Read the Data The rapid uptick in foreign trade in the first two months of the year was largely driven by high volumes of trade in electromechanical equipment and electronics, with rising exports to Southeast Asia and developing nations offsetting the continued decline in shipments to the US. Meanwhile, the substantial rise in imports in the first quarter may indicate that increasing industrial activity is driving domestic demand for input raw materials. However, the sharp uptick recorded in March in particular is likely a factor of the crisis in the Middle East, as China seeks to stockpile critical raw materials for national security reasons, which is skewing the data. The sudden slowdown in exports in March is likely also attributable to the crisis, as rising prices decrease demand for Chinese exports. If this trend continues, it could have a significant impact on the overall economy due to China’s reliance on export-driven growth. However, the energy crisis has also highlighted the urgent need to reduce reliance on fuel imports in China’s key export markets, such as the EU, which could lead to an increase in demand for green technology imports from China, especially EVs and solar and wind power equipment. Whether this potential demand uplift materializes in time to offset the near-term trade disruption remains to be seen, and will depend heavily on how quickly affected economies accelerate their energy transitions.
Impact of global supply chain disruptions on China’s economy in 2026
Analysts broadly agree that the impact of the Iran war and supply chain disruptions is not yet visible in China’s economic indicators. Thus far, China has been able to absorb the shock of the crisis thanks to its large stockpiles of critical resources that have been released to stabilize local markets.
However, it is unclear how long this can be sustained, and China’s foreign trade and domestic production and consumption remain exposed to global price volatility.
Rising costs of fuel and other key commodities may have an inflationary effect in key export markets, which could drive down demand for Chinese products. This same phenomenon may also harm domestic production and consumption, as rising costs of inputs drive up costs for Chinese companies and households, damaging business and consumer sentiment.
In the press briefing, Mao pointed out that the relatively moderate growth in consumer prices indicates that the cost of oil and gas has not had a significant impact on the price of goods in China. While he acknowledged that the crisis could impact China’s exports in the coming months, he stressed that the country still has significant advantages that bolster its resilience, including its mature industrial chains and optimized energy structure.
“From an international perspective, China has a sound industrial system, strong supply capacity, robust economic resilience, and a relatively stable energy supply. Price increases in related domestic industries are significantly lower than in the international market.” – Mao Shengyong, Deputy Director of the National Bureau of Statistics
The coming months will be a critical test of the resilience Mao described. If the crisis is short-lived, China’s structural advantages and accumulated reserves may prove to be sufficient to weather the crisis. A more protracted conflict, however, could erode those buffers and expose the country’s underlying vulnerabilities.
For businesses, the stable Q1 data is a reason for optimism, but steps must be taken to ensure preparedness in the case of continued disruption to global supply chains. This involves monitoring for potential shocks and assessing current supply chain risks, diversifying sources for key input materials where possible, and developing contingency plans for shipping and production.
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