HONG KONG: China’s main economic indicators fared better than forecast to start the year, in a sign that momentum was improving before the war in Iran roiled the outlook for global growth and inflation.
Industrial production climbed 6.3% in the January-February period from a year ago, according to data released by the National Bureau of Statistics (NBS) yesterday. That’s the fastest growth since September, a performance that likely benefitted from a surprising surge in exports early this year.
Other segments of the economy that are more reliant on domestic demand also got off to a stronger start than expected.
Retail sales rose 2.8% in the first two months – more than triple their gain in December – while fixed-asset investment (FAI) unexpectedly expanded 1.8% after contracting for the first time on record in 2025.
“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 in Hong Kong.
“This should help cushion the economy against external shocks in the near term.”
The figures provide an encouraging snapshot of the world’s second-biggest economy this year, after it ended 2025 with the slowest growth since the reopening from Covid-19 lockdowns in late 2022.
As domestic consumption and investment cooled, gross domestic product growth decelerated in the fourth quarter to 4.5% from a year earlier.
But in the past two weeks, the widening conflict in the Middle East has upended energy markets and caused a new disruption to trade.
While China is less vulnerable to an oil price shock than other major economies in Asia, its export machine is exposed to the threats to global growth and inflation.
Higher fuel and raw material costs could also squeeze profit margins of manufacturers already under pressure from cutthroat competition.
Chinese government bonds declined across the curve after the upbeat data, and as fears of inflation sweep through markets following the spike in oil prices.
The yield on 30-year bonds rose to the highest since August 2024, with the offshore yuan maintaining its 0.1% gain versus the dollar.
The improvement across the economy will likely delay the rollout of stimulus as policymakers assess the fast-changing situation in the Middle East.
Economists polled by Bloomberg in late February expected a cut to the policy interest rate and banks’ required reserves by the end of March, but the likelihood of a later reduction is rising.
“The biggest surprise would be the positive increase in FAI,” said Serena Zhou, senior China economist at Mizuho Securities in Hong Kong.
“Such upside surprises may delay the timing of the rate cut we’ve been expecting,” she said, adding that they had forecast a decrease by the end of March.
Government spending on infrastructure also slowed as authorities focused on repaying debt.
Now a nascent shift appears to be underway. Infrastructure investment surged 11.4% in the first two months from a year ago – the fastest increase for the period since 2021.
That could be a result of authorities embarking on construction projects delayed from late 2025, when the growth target already appeared within reach.
Manufacturing investment also reversed declines and grew 3.1%.
Higher raw material prices were partially behind the turnaround, according to Mizuho’s Xue, with non-ferrous metals like copper rallying in the past few months.
“Whether there is a recovery in real demand – it remains too early to tell.”
It’s still a question if the recovery in consumer spending is sustainable.
The government earlier announced that it’s trimming subsidies for consumer goods purchases to 250 billion yuan (US$36bil) this year from 300 billion yuan in 2025, while maintaining the meager pace of increases in basic pension payouts.
Beijing lowered its annual economic growth target to 4.5%-5% – the least ambitious goal since 1991, though from a much larger base of gross domestic product.
While exports were surprisingly strong in the first two months of 2026, the outlook now hinges in part on the duration and intensity of the war, which began with the US and Israeli strikes against Iran on Feb 28. — Bloomberg
