China’s economy expanded by 5% in the first quarter of 2026, exceeding economist expectations and hitting the government’s growth target despite the onset of the Iran war. The January-March data, released Thursday, shows an acceleration from the 4.5% growth recorded in the final quarter of last year.
This resilience comes amid a volatile trade environment. Even as the broader economy grew, March export growth plummeted to 2.5%, a six-month low that follows a combined surge of more than 20% in January, and February.
Imports jumped nearly 28% in March
Customs data released Tuesday reveals a sharp spike in import values, which drove the monthly trade surplus down to just over $50 billion (£36.85 billion). This is the lowest surplus the country has seen in more than a year.
Yixiao Zhou, an economics lecturer at the Australian National University, attributes this surge to rising global costs triggered by the conflict in Iran. Threats against shipping vessels in the Strait of Hormuz have inflated the price of crude oil and petroleum-based materials like plastics.
Domestic effects are already surfacing. Petrol prices are climbing across China, and some airlines have scrapped flights as jet fuel costs soar.
Global demand could soften as war persists
The sharp slowdown in March exports suggests that the “initial impact” of the war may be transitioning into a longer-term drag. Strong demand for electronics and manufactured goods fueled the early-year jump, but that momentum has stalled.
Eswar Prasad, a professor of economics and trade policy at Cornell University, warns that a lack of a speedy resolution to the conflict will likely dent global growth. This, in turn, reduces the ability of other economies to absorb Chinese goods.
“Export growth ultimately depends on your trading partners’ economies,” Zhou said. “It is hard to sustain that growth at a very high rate continuously.”
IMF lowers 2026 forecast to 4.4%
The International Monetary Fund recently trimmed its 2026 growth projection for China to 4.4%. This puts the forecast slightly below the government’s official target of 4.5% to 5%, the slowest target set since 1991.
China’s growth is already fighting a multi-year slump in the real estate sector that has eroded investor and consumer confidence. Last year, the country met its “around 5%” target by relying on robust exports, which pushed the trade surplus to a record nearly $1.2 trillion despite higher U.S. Tariffs.
Lynn Song, chief economist for Greater China at ING, suggests the current stability is temporary. She notes that while China can likely weather short-term disruptions, a protracted war and sustained high energy prices would likely bite into growth by the second half of the year.
Why did the economy grow despite the war?
The 5% expansion in the first quarter indicates that China largely shrugged off the initial shocks of the conflict, outperforming economist expectations and improving upon the 4.5% growth seen in the previous quarter.
What caused the trade surplus to fall in March?
The surplus dropped to just over $50 billion (£36.85 billion) because export growth slowed to 2.5% while imports surged by nearly 28%, driven by higher global costs for oil and raw materials due to the Iran war.
