China's economy started 2026 with more momentum than expected, resisting better than other major powers the impacts of the war in the Middle East. The 5% growth in the first quarter confirms that the export engine is still running even in a global environment shaken by conflicts and an energy crisis.
However, the new official data released this Thursday also expose the same structural problem that Beijing has been facing for years: an internal demand unable to keep up with production pace.
The GDP figure published by the National Bureau of Statistics, from January to March, represents an acceleration from the previous quarter's 4.5% and provides relief to authorities who have lowered their ambitions. The official growth target for this year, between 4.5% and 5%, is the most modest since 1991.
This is not just a gesture of prudence: it is an implicit acknowledgment that the world's second-largest economy has entered a phase of slower growth, conditioned by a trade war with the United States, a real estate sector in permanent crisis, and a still restrained domestic consumer.
The international context adds another layer of uncertainty. The escalation in the Middle East and its impact on energy markets has increased production costs and strained logistical chains. For China, the world's largest oil importer, the energy shock has been a reminder of its vulnerability in terms of energy dependence. Beijing's own statistical office spokespersons put it bluntly: the environment is "more complex and volatile," with a "sharp" imbalance between strong supply and weak demand.
This imbalance is reflected in the data. Industrial production grew by 6.1% year-on-year in the quarter, well above the 2.4% of retail sales. In March, consumption once again disappointed: it only advanced by 1.7%, following the temporary boost in February due to the Chinese New Year holidays. Investment also fails to take off. Urban fixed-asset investment increased by 1.7%, below expectations, while the real estate sector (a traditional growth pillar) contracted by 11.2%.
Against this internal weakness, the external sector has once again acted as a lifesaver. Exports grew by 14.7% year-on-year in the first quarter, their fastest pace since early 2022. But the momentum is fading. In March, growth plummeted to 2.5%, weighed down by the blockade in the Strait of Hormuz and the cooling of global demand. It is a familiar pattern: China exports more when the world buys cheaper; when costs rise, the model suffers.
The rise in industrial prices in March -the first in over three years- points precisely in that direction. Cost inflation is beginning to seep into the manufacturing sector, eroding already narrow margins. For an economy that competes on price in many sectors, this is an immediate risk. Nevertheless, China's resilience remains remarkable.
The combination of a powerful industrial apparatus, an active fiscal policy, and tight control of the financial system allows it to cushion external shocks better than other major economies. Beijing has already indicated that it will intensify spending on infrastructure and public services, with a projected deficit of around 4% of GDP and a significant debt issuance.
The latest report from the International Monetary Fund placed China's growth for this year at around 4.6%-4.8%, a solid figure compared to other major powers, but far from the double-digit rates of not long ago. The first quarter confirms that China can weather external storms. The question is how long it can do so without addressing its internal weaknesses.
Beijing is also closely monitoring the situation in the blocked Strait of Hormuz these days, the world's main energy bottleneck through which nearly a third of global maritime oil transits. China buys close to 90% of the oil exported by Iran - much of it bypassing sanctions - and is also the largest customer of Saudi Arabia and other Gulf producers. The energy-dependent Asian country currently has ample crude reserves and is trying to safeguard itself by diversifying suppliers and buying more energy from Russia.