BEIJING, March 16 (Reuters) – China’s economy began the year on a firmer footing as factory output quickened while retail sales and investment rebounded in January-February, offering early relief for policymakers as the U.S.-Israeli war with Iran injects fresh uncertainty for growth.
The resilience followed a surge in exports driven by booming AI-related technology demand, which also buoyed upstream manufacturing, although analysts cautioned of risks to the outlook from geopolitical tensions, fragile consumer confidence and strains in global trade and energy markets.
Industrial output rose 6.3% from the same period in the previous year, National Bureau of Statistics (NBS) data showed on Monday, up from the 5.2% growth clocked in December. It beat a 5% expansion forecast in a Reuters poll and marked the quickest growth since September last year.
“While risks to the outlook have increased amid geopolitical tensions and disruptions to global trade and energy markets, the latest figures indicate that China entered the year with a firmer growth footing than previously thought,” said Hao Zhou, chief economist at Guotai Junan International.
Retail sales, a gauge of consumption, jumped 2.8%, quickening from the 0.9% pace in December for their biggest gain since October last year. Analysts had expected 2.5% growth.
The strong impetus was driven in part by the country’s longest Lunar New Year holiday in February. The festivities helped boost total tourism spending by almost 19% from the same holiday period last year, which was one day shorter.
But domestic tourism spending per trip dipped 0.2%, suggesting consumers remain cautious.
Data from earlier last week, for instance, showed passenger vehicle sales at home tumbled 26% in the first two months.
China combines January and February data releases to smooth out distortions from the festival holidays, which can fall in either month.
UNEMPLOYMENT TICKS UP, JOBS ‘HARD TO FIND’
Monday’s data provided another encouraging sign for policymakers as an unexpected upturn in investment took some of the sting off the challenge of a protracted downturn in the critical property sector.
Fixed asset investment, which includes property and infrastructure investment, expanded 1.8% in the first two months, defying expectations for a 2.1% decline after contracting 3.8% in 2025 – its first annual drop in about three decades.
Infrastructure investment led the rebound, growing 11.4% as policy support, including a new financing tool from banks to fund key projects, began to take effect.
The overall data, while showing some positive momentum, still suggest a wide gap between robust external demand and sluggish household consumption that analysts warn could hamper China’s long-term growth prospects.
“It cannot be ruled out that domestic demand data in March will still face downward pressure,” said Zhaopeng Xing, senior China strategist at ANZ, though he added that the overall data do not support an interest rate cut in the near term.
Last week’s lending data pointed to a continued slump in household borrowing.
Also, worryingly for income generation, the survey-based nationwide jobless rate rose to 5.3% in the first two months from December’s 5.1%, the NBS data showed.
“The current employment landscape remains challenging and jobs are hard to find,” said a college graduate surnamed Bai, who majored in education while attending a job fair in Beijing.
WAR IMPACT TO START FEEDING THROUGH IN COMING MONTHS
At the annual parliament meeting that closed last week, policymakers set this year’s economic growth target at 4.5%-5%, down from last year’s “around 5%”. The target was met in 2025 largely on the back of a record trade surplus of $1.2 trillion, deepening unease among China’s trading partners.
Analysts say China faces significant challenges as it tries to foster sustainable longer-term growth.
While the government pledged a “notable” lift in household consumption, it spelled out limited measures to suggest a turn toward aggressive demand‑side reforms.
The Middle East conflict adds fresh uncertainty as it drives up energy prices and rattles global trade, raising the stakes for U.S. President Donald Trump’s late-March trip to Beijing to meet President Xi Jinping.
Fu Linghui, NBS spokesperson, told a press briefing on Monday that the Middle East war has stoked oil-price volatility and market jitters, but China’s overall energy supplies should help buffer external shocks. He said the conflict’s impact on domestic prices will require further scrutiny.
“The turmoil in the Middle East is set to show its impact on the global economy in coming months… I expect policymakers to respond through fiscal policy if necessary,” said Zhiwei Zhang, chief economist at Pinpoint Asset Management.
“The market will focus on the upcoming meeting between the Chinese and American leaders. While China will likely purchase more goods from the U.S. to mitigate the trade imbalance, the war in the Middle East has made the meeting complicated.”
(Reporting by Kevin Yao, Liangping Gao, Ellen Zhang and Ethan Wang;Editing by Shri Navaratnam)
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