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Economic Insight
26.04.2026
China’s economy kicked off 2026 on a solid footing with GDP expanding by 5.0% y/y in Q1, accelerating from 4.5% in Q4 and exceeding market expectations. Growth was supported by manufacturing and exports rather than a broad-based pickup in domestic demand. Official messaging continues to highlight an imbalance between strong supply and weak demand, as household consumption and private investment remain subdued. Policy support has remained measured and targeted, with authorities keeping benchmark lending rates (1Y and 5Y LPRs at 3.0% and 3.5%, respectively) unchanged. Meanwhile, financial indicators suggest broadly muted confidence in a self-sustaining recovery, with loan growth continuing to soften (latest at 5.7% y/y) and government bond yields remaining near multi-year lows. At the same time, the external backdrop has deteriorated. Tensions stemming from the Middle East war have rocked energy markets and added uncertainty to global demand. For now, China has avoided meaningful economic disruption, helped by ample oil reserves, diversified energy supplies, and some measures that limited the increase in domestic fuel prices.
Looking ahead, the durability of the recent growth will hinge on external demand conditions and the effectiveness of any new fiscal or monetary policy measures, noting that the property sector remains a structural drag on activity and confidence with real estate investments as well as home prices still falling. Risks to exports could intensify if the Middle East war drags further or widens, extending the energy price shock and the disruption to supply chains. Against this backdrop, China has quietly stepped-up its diplomatic engagement with the warring parties in an effort to reach a breakthrough, capitalizing on the country’s good relations with Iran and reflecting its interest in safeguarding global geopolitical stability. Overall, the solid growth in Q1 puts the country in a good spot towards achieving the 4.5-5% growth target for 2026, but the outlook remains fragile.
