On January 28, 2026, a staff member sorts packages on a postal sorting assembly line at a postal distribution logistics joint distribution center in Mengshan County, Wuzhou City, Guangxi Province, China. (Photo courtesy of Costfoto/NurPhoto, Getty Images)
Cost Photo | Null Photo | Getty Images
China’s economy got off to a strong start this year, with both consumption and production exceeding expectations, with an early boost from holiday spending and strong external demand.
Office for National Statistics data on Monday showed retail sales rose 2.8% year-on-year in the first two months, beating economists’ expectations for a 2.5% rise. However, this growth reflects a notable slowdown from the 4% rise in the January-February 2025 period.
Yuhan Zhang, chief economist at the Conference Board China Center think tank, said consumption momentum was partially boosted by the Lunar New Year holiday in mid-February, noting that spending on gold and jewelry as well as tobacco and alcohol sales increased.
The long holiday period has led to a steady increase in spending across the country on everything from hotel reservations to duty-free shopping, dampening hopes for a large short-term economic stimulus package from policymakers.
Industrial production rose 6.3%, also better than expected, with a Reuters poll predicting a 5% rise. Industrial production in the world’s second-largest economy has been a relatively bright spot, thanks to solid external demand, particularly from Europe and Southeast Asian countries.
Despite growing criticism from trading partners over China’s overcapacity, China’s export momentum continues into 2026, with overseas shipments surging nearly 22% in the first two months of this year.
Investment in fixed assets, including real estate, rose 1.8% year-on-year, compared to expectations for a 2.1% decline. In terms of fixed assets, investment in real estate development continued to decline as the real estate crisis dragged on, dropping by 11.1% in January and February, slowing down from the 17.2% decline in 2025.
Separate data released on Monday showed that China’s long-term housing price decline in 70 major cities worsened in February, with new home prices falling 3.2% year-on-year, the steepest decline in eight months, Reuters reported.
Investment excluding real estate development increased by 5.2% year-on-year, supported by inflows to infrastructure and manufacturing.
Fixed asset investment suffered a historic decline in 2025, falling 3.8% year-on-year, as a deepening real estate recession and tighter local government borrowing restrictions hampered one of China’s traditional growth engines.
geopolitical headwinds
Despite resilient economic indicators, government officials acknowledged growing economic headwinds stemming from geopolitical tensions and deep problems with the growth model that are weighing on corporate profitability.
The Bureau of Statistics said, “We should recognize that the evolution of the external environment is having a major impact on China, and that geopolitical risks continue to rise.”
Spokesperson Fu Linghui told reporters on Monday that China’s energy supply capacity is still sufficient to cope with the rising volatility in global oil prices, and said Beijing would closely monitor the impact on inflation.
Data shows that China may be more insulated from the closure of the Strait of Hormuz than other major economies because it has spent the past two decades diversifying its energy sources and building strategic reserves.
As of January, the Chinese government had an estimated 1.2 billion barrels of oil stored on land, enough to meet three to four months’ worth of demand.
Seaborne oil imports through the Hormuz waterway currently account for less than half of China’s total oil shipments, according to Rush Doshi, director of China strategic initiatives at the Council on Foreign Relations. Nomura also estimated that oil flows through Hormuz account for only 6.6% of China’s total energy consumption.
That said, the escalation of the Middle East crisis could still create a demand shock for export-dependent economies, as rising energy costs add to inflationary pressures, disrupt global supply chains and constrain consumer and business spending across major trading partners in Europe and Asia.
“The turmoil in the Middle East will impact the global economy in the coming months,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, adding that he expects Chinese policymakers to “monitor developments and respond through fiscal policy as necessary.”
Goldman Sachs on Friday cut its forecast for China’s real GDP growth by 0.1 percentage points, citing rising energy costs, but that was smaller than the 0.3 to 0.5 percentage points it expected for other regional economies.
Goldman also raised its forecast for annual consumer inflation in China to 0.9% from its previous forecast of 0.6% and expects factory prices to rebound 0.8% this year as higher oil prices spill over into supply chains.
Just last week, Chinese leaders released their annual economic targets for 2026, lowering their GDP growth target to a range of 4.5% to 5%, making it the most ambitious goal since the early 1990s.
The urban unemployment rate was 5.3% in the first two months of this year, and the average unemployment rate in 2025 was 5.2%, according to official data.
—CNBC’s Evelyn Cheng contributed to this article.
