China's economy has rebounded in the first three months of this year, primarily driven by strong sales of machinery and electronics to other countries. However, government officials express concerns about future challenges.
The National Bureau of Statistics released data on Thursday showing that the economy grew by 5.0% year-on-year in the first quarter, exceeding analysts' expectations and surpassing the 4.5% growth recorded in the last quarter of last year.
Deputy Director of the National Bureau of Statistics, Mao Shengyong, pointed out at a press conference: “The external environment is becoming increasingly complex and unstable, while domestic structural imbalances are evident, characterized by strong supply but weak demand.”
Export performance at the beginning of the year was exceptionally strong, with foreign sales increasing by 21.8% in January and February. However, due to the war affecting shipping routes and leading to higher transportation costs, growth in March plummeted to just 2.5%.
Despite this, exports for the entire quarter still grew by 14.7%, better than the 5.5% recorded in the same period of 2025.
“Overall, while China's economy is performing well, its dependence on external demand is deepening. The Iranian war may further exacerbate this trend, although the impact on overall growth is limited,” said Huang Zichun, an economist at financial consultancy Capital Economics, on Thursday.
China's investments in high-tech manufacturing and green energy are beginning to pay off.
Exports of electric vehicles increased by 78% year-on-year. Sales of lithium batteries grew by 50%, and wind turbine equipment also saw a 45% increase, according to customs officials.
“Despite the shock from energy prices, exports are expected to remain robust in the coming quarters, thanks to strong demand for semiconductors and green technologies,” Huang Zichun stated earlier this week.
However, domestic consumption remains weak. Retail sales in March grew by only 1.7% year-on-year, down from 2.8% in the previous two months. Industrial output grew by 5.7%, although the growth rate slowed, it still exceeded expectations.
“Due to the diminishing effect of subsidies, demand for automobiles is slowing, and China's retail sales momentum is weakening,” said Zhang Ying, an analyst at the Economist Intelligence Unit. She mentioned a plan initiated by Beijing in 2024 to encourage the public to purchase new home appliances and cars.
“The ongoing lack of structural reforms means that consumption will continue to be a weak growth driver in 2026,” Zhang stated.
Factory prices have risen for the first time in over three years. The Producer Price Index increased by 0.5% year-on-year in March, ending a continuous decline since September 2022. However, analysts warn that high oil prices could further harm households that are already consuming less.
Relations with Washington are becoming increasingly tense.
“Iran was once the largest state sponsor of terrorism. China used to purchase over 90% of its oil from Iran, which accounted for about 8% of China's energy needs,” Bessent stated at the press conference.
Two Chinese banks have received warning letters from the Treasury Department. “We told them that if they can prove there are Iranian funds flowing in…