China’s economy builds early momentum in 2026
China’s factory production growth accelerated in January-February, while retail sales recovered; This has been a steady start to the year for an economy facing numerous challenges, including the effects of the US-Israeli war against Iran.
Office for National Statistics data showed on Monday that industrial production increased by 6.3 percent compared to the same period last year. This figure was higher than the 5.2 percent growth in December.
It recorded the fastest growth since September last year, surpassing the five percent growth forecast in a Reuters survey.
The figures follow data showing China’s exports exceeded forecasts in the first two months; This situation also increases production for production, with the support of the increasing demand for artificial intelligence-related technology.
“While risks to the outlook are increasing due to geopolitical tensions and disruptions in global trade and energy markets, the latest figures show China is entering the year on a more solid growth foundation than previously thought,” said Hao Zhou, chief economist at Guotai Junan International.
Retail sales, an indicator of consumption, increased by 2.8 percent, the biggest increase since October last year, accelerating from the 0.9 percent pace in December. Analysts were expecting 2.5 percent growth.
The strong momentum was driven in part by the country’s longest Lunar New Year holiday in February. The festivals helped total tourism spending increase by almost 19 percent compared to the same holiday period last year (one day shorter).
However, the decrease in domestic tourism expenditures by 0.2 percent per trip shows that consumers continue to be cautious.
For example, data obtained at the beginning of last week showed that domestic passenger car sales fell 26 percent on an annual basis in the January-February period, hurt by the end of tax breaks and reduced government subsidies for electric vehicles.
China combines January and February data to smooth out distortions from festival holidays that may fall in both months.
Monday’s data provided another encouraging sign for policymakers as an unexpected rebound in investment eased some of the challenges brought on by a prolonged downturn in the critical real estate sector.
While fixed asset investment, which includes real estate and infrastructure investments, increased by 1.8 percent in the first two months, there were expectations for a decrease of 2.1 percent. It fell 3.8 percent in 2025; This is the first annual decline in nearly three decades.
In particular, infrastructure investments increased by 11.4 percent with the introduction of policy support, which included a new financing instrument for banks to finance major investment projects.
Overall data shows some positive momentum but still shows a wide gap between strong external demand and stagnant household consumption, which analysts warn could hinder China’s long-term growth prospects. Last week’s credit data showed a continuing decline in household borrowing.
Also, according to NBS data, the survey-based nationwide unemployment rate rose from 5.1 percent in December to an alarming 5.3 percent in terms of income generation in the first two months.
“It cannot be ruled out that domestic demand data in March will still face downward pressure,” said Zhaopeng Xing, ANZ’s senior China strategist, but added that overall data did not support a rate cut in the near term.
At the annual parliamentary meeting that ended last week, policymakers set this year’s economic growth target at 4.5 percent to 5 percent, below last year’s target of “around five percent.”
The target was met largely on the back of a record trade surplus of just over US$1 trillion ($A1.4 trillion) in 2025, deepening unease among China’s trading partners.
