China’s economy grew 5% year-on-year in the first quarter of 2026, beating market expectations of 4.8%, according to data released by the National Bureau of Statistics (NBS) on Thursday during Asian trading hours.
The reading marks an acceleration from the 4.5% pace recorded in the previous quarter and signals that the world’s second-largest economy is weathering global headwinds better than many had anticipated.
Domestic demand drives growth
The NBS said domestic demand was the main engine of expansion, contributing 84.7% of overall first-quarter growth. Stronger household spending and firming demand in the services sector underpinned activity, according to the agency.
Producer prices turned positive for the first time in more than three years, supported by healthier domestic consumption and higher international oil prices. This shift is seen as a sign that firms are regaining pricing power, a development that could support a recovery in corporate profits and is often viewed as a forward-looking indicator of economic strength.
Limited impact from Middle East tensions
Deputy head of the NBS, Sheng, described the first-quarter performance as a “steady start” despite external pressures. He said that the impact of ongoing conflicts in the Middle East on China’s economy remains “relatively small,” even as the region’s tensions disrupt trade and shipping routes.
Authorities acknowledged that instability in the Middle East could put some pressure on exports and certain energy-intensive industries due to fluctuations in global oil prices. However, they stressed that the overall macroeconomic impact on China appears limited and that the broader growth momentum remains intact.
Market reaction and risk sentiment
The stronger-than-expected GDP data is likely to provide fresh support to assets that are sensitive to global growth, as it points to firmer risk appetite among traders. The 5% print, above the 4.8% median forecast, suggests that China is navigating international volatility more effectively than many had priced in.
Sheng’s effort to downplay external conflict risks reinforces this view, signaling that Beijing sees one of the key sources of global uncertainty as manageable. That stance may help steady market sentiment and support continued capital inflows into China-related assets.
Focus on producer prices and corporate earnings
A key detail in the NBS report is the rebound in producer prices, which have moved into positive territory after more than three years of declines or stagnation. Rising factory-gate prices can ease margin pressure, improve earnings prospects for industrial firms and signal that underlying demand is firming.
Market participants will be watching whether this trend in producer prices proves sustainable. A continued uptick could point to a more self-sustaining recovery, while any reversal would raise questions about the durability of the current momentum.
Questions over durability of consumption
While domestic consumption played an outsized role in first-quarter growth, its staying power is now under scrutiny. The headline GDP figure paints a robust picture, but more detailed data show that retail sales growth slowed noticeably in March.
Traders will need to balance the strong start to the year against signs that consumer activity may be moderating at the margin. How domestic demand evolves in the coming quarters will be central to whether China can maintain growth near current levels in the face of lingering global and geopolitical risks.
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