April 16 (Reuters) – China’s economy expanded 5% in the first quarter compared with a year earlier, according to official data on Thursday, surpassing analysts’ expectations even as policymakers prepare for potential fallout from the Iran conflict.
Economists polled by Reuters had projected a 4.8% year-on-year expansion for the January-March period, following a three-year low growth rate of 4.5% in the fourth quarter.
On a quarterly basis, GDP grew 1.3% in the first quarter, matching forecasts and just ahead of the 1.2% gain in the previous quarter. KEY POINTS
* Q1 GDP +5% y/y (forecast +4.8%, Q4 +4.5%)
* Q1 GDP +1.3% q/q (forecast +1.3%, versus +1.2% in Q4
* March industrial output +5.7% y/y (forecast 5.5%)
* March retail sales +1.7% y/y (forecast +2.3%)
* January-March fixed asset investment +1.7% y/y (forecast +1.9%)
* January-March property investment -11.2% y/y MARKET REACTION
Both China’s blue-chip CSI300 Index and the Shanghai Composite Index extended gains after the data release, rising 0.9% and 0.5%, respectively, by the lunch break.
China’s onshore yuan was little changed at 6.8173 per dollar, as of 0330 GMT, near its strongest level in three years. COMMENTARY
WANG ZHUO, PARNTER, SHANGHAI ZHUOZHU INVESTMENT MANAGEMENT, SHANGHAI:
“The data looks pretty good, especially in high-tech industries dominated by the private sector. Exports and the PMI had also shown signs of recovery ahead of the data release. Challenges that remain are weak domestic consumption and a bifurcated economy. “As the new economy heats up, the old economy remains sluggish, effecting jobs and suppressing retail sales. It’s worth monitoring if the vigor in the new-economy sectors will disperse to the wider economy, revving up internal demand.”
ZHENNAN LI, SENIOR ASIA ECONOMIST, PICTET WEALTH MANAGEMENT, HONG KONG:
“I think second-quarter growth momentum probably could slow a bit, with typical stop-go pattern in government-driven investment kicking in (significant acceleration followed by slowdown). The housing sector is slightly encouraging… housing sales have shown some preliminary signs of stabilization since last November. Housing prices were less so, but at least Tier-1 cities housing prices have also shown some signs of stabilization (though lower-tier cities prices not yet).” CAROL KONG, INTERNATIONAL ECONOMIST, COMMONWEALTH BANK OF AUSTRALIA, SYDNEY:
“Year-to-date growth actually hit the upper end of the 2026 target of 5%. So, the data hasn’t really shown much of an impact from the Iran war. That’s not surprising because we know that the Chinese government has a pretty broad toolbox to absorb the economic shock from the Iran war, despite the dependence on Middle Eastern oil. We did not really expect the activity side will be hit severely in the near term, at least.
“We have taken quite an optimistic view. China is dependent on Middle Eastern oil, but the shipping that has crossed the Strait of Hormuz has mostly gone to China. The flows are going to hold up pretty well for Beijing. China has a lot of oil inventories to offset any shortfall in supply.
“Overall, China will be able to weather the shock pretty well. That’s why we haven’t really changed our China forecast, and we’re still expecting the economy to hit the lower end of the target of 4.5% this year.” XU JIE, FUND MANAGER, YUANZI INVESTMENT MANAGEMENT, SHANGHAI:
“It’s well within expectations. The market had been expecting a robust first quarter following stellar economic data in January-February, including imports and exports, and industrial production data.
“It’s certainly a good thing for the market that China is breaking from the downward trend during the second half of last year. It’s still too early to assess the impact on Chinese economy from the Iran war as the situation is volatile.” XING ZHAOPENG, SENIOR CHINA STRATEGIST, ANZ, SHANGHAI:
“Fiscal spending surged beyond seasonal norms to offer strong support for the GDP growth in the first quarter. The front-loaded issuance of government bonds and a sharp decline in fiscal deposits indicated that fiscal policy has played a key role in the first quarter.
“Double-digit growth in infrastructure investment offset declines in net exports. Considering a nearly 200 billion yuan worth of fiscal deposit auction on Friday, fiscal measures may slow down in the second quarter.
“China is faced with overcapacity issues, supply shocks should help correct the supply-demand imbalance.” JUNYU TAN, NORTH ASIA ECONOMIST, COFACE, HONG KONG:
“The solid start to the year on the back of strong export performance suggests the direct impact of the Middle East conflict remains contained for now. But the outlook is not all rosy despite China’s relative resilience amid energy supply chain disruptions. The export engine could still be constrained by weaker global demand if the conflict persists.”
“On the domestic front, the investment rebound may lose steam as front-loaded fiscal support fades, while consumption growth could be weighed by the high base from trade-in subsidized sales and its diminishing effects.” CHRISTOPHER WONG, STRATEGIST, OCBC, SINGAPORE:
“A solid GDP but focus will shift to potential disruptions in coming months. RMB was little changed in response to GDP, which comes as no surprise. RMB stability is likely to persist. In fact, since the onset of Iran war, the RMB is the best-performing FX, outperforming even the USD. We are expecting RMB to continue its path of measured appreciation.” VINCENT CHAN, CHINA STRATEGIST, ALETHEIA CAPITAL, HONG KONG:
“It seems that the strong GDP was largely due to the strength of the economy in the first two months, particularly exports. Going into March, it seems that everything has weakened, retail sales, FAI (fixed-asset investment) and exports. The Iran war is probably having an impact on the Chinese economy.” KHOON GOH, HEAD OF ASIA RESEARCH, ANZ, SINGAPORE:
“It’s very clear that the Chinese economy has been fairly well-insulated from the Middle East conflict. We do know this is partly because they probably incurred less of an oil supply disruption as they’re able to access oil from Russia and partly Iran. And they’ve also curtailed their exports or refined products, so there’s no issue about potential shortages onshore.
“As a result, their factories and production capability continue to function as normal, and that’s been reflected in the growth numbers. But retail sales came in weaker than expected and this suggests that the road ahead in trying to get consumption to pick up and become a bigger, important driver of growth is still some way off.”
BACKGROUND
* China has struggled to mount a strong and sustainable post-COVID economic rebound, burdened by a protracted property downturn, massive local government debt and weak private-sector spending.
* The world’s second-largest economy is expected to cool over the rest of 2026 as the Middle East crisis threatens to choke corporate profits and sap overseas demand.
* China has so far absorbed the economic shock from the Iran war with limited disruptions, cushioned by large oil reserves, a diversified energy mix and tight price controls. But economists said that persistently higher oil prices are already lifting input costs and squeezing profits at a time when domestic demand remains weak.
* Economists warn that a shift to inflation driven by higher costs rather than stronger demand could leave Beijing boxed in, crimping growth and narrowing room for stimulus at a time when the economy is already fragile.
* An input-cost shock to the world’s largest manufacturing base, which employs hundreds of millions, threatens to pile pressure on jobs and wages. Already, a quarter of manufacturing firms are operating at a loss after years of industrial overcapacity sparked relentless price wars.
* Chinese exports have been surprisingly strong despite the trade war with the U.S., helping to offset weak domestic demand. But strains are starting to show. Data this week showed China’s export engine slowed sharply in March as the Iran war triggered shocks to energy and transportation costs, exposing the risks in Beijing’s strategy of leaning on manufacturing to sustain growth.
(Reporting by Reuters Asia bureaus; Compiled and edited by Sherry Jacob-Phillips)
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