HONG KONG, April – Newly released official data shows China’s economy outperformed market projections in the first three months of 202X, logging a 5% year-on-year expansion that marked an acceleration from the 4.5% growth recorded in the final quarter of last year. The strong quarterly performance comes even as the ongoing Iran conflict, now in its seventh week, has roiled global energy markets and dragged on worldwide economic momentum, with China proving more resilient to short-term disruptions than many analysts initially predicted.
Economists broadly agree that China is well-positioned to absorb the immediate shocks stemming from the Iran war, which has driven a sharp uptick in global energy costs and worsened already persistent inflationary pressures across major economies. Still, the conflict carries clear longer-term risks for China’s growth trajectory, particularly through its impact on global demand for Chinese manufactured exports.
Fresh trade data published earlier this week already signaled a notable cooling in China’s outbound shipments: exports rose just 2.5% year-on-year in March, a sharp slowdown from the faster growth recorded in the first two months of the year. Cornell University economics and trade policy professor Eswar Prasad noted that as nations around the world prioritize shielding their domestic industries, households and economies from the Iran war’s spillover effects, global appetite for Chinese imports is clearly contracting. “A prolonged conflict, paired with elevated energy prices that stick around longer than expected, will dent overall global growth, and that will directly undermine other economies’ capacity to purchase Chinese goods,” Prasad explained.
Last month, Chinese leadership set a 202X full-year growth target of 4.5% to 5%, the lowest official annual growth target the country has announced since 1991. The International Monetary Fund this week revised down its 2026 growth forecast for China to 4.4%, marking a downgrade from earlier projections. Even so, most economists believe China remains on track to hit this year’s growth target via targeted policy stimulus measures. However, additional structural risks persist beyond the Iran conflict’s spillover effects.
The country has been grappling with a multi-year slump in its real estate sector, which has dragged down both consumer and investor confidence for the past several years. Despite this headwind, China still hit its “around 5%” growth target in 202X-(last year), powered by surprisingly robust export performance that pushed the country’s annual trade surplus to a new record of nearly $1.2 trillion – even in the face of elevated punitive tariffs imposed by the U.S. under former President Donald Trump.
Lynn Song, chief economist for Greater China at ING Group, noted that while near-term disruptions are manageable, a drawn-out conflict and sustained higher energy prices will likely start to erode China’s growth by the second half of the year. Prasad added that while ramping up public sector investment can help stabilize headline growth to hit the official target this year, the approach carries its own downsides. Without a meaningful strengthening in household consumption demand, increased public investment could intensify underlying deflationary pressures and leave the Chinese economy even more dependent on export-driven growth in the long run.