China’s economy loses steam as domestic demand drops
China’s growth lost momentum in April as industrial production cooled and retail sales fell to three-year lows as the world’s second-largest economy grappled with high energy costs from the Iran war and persistently weak domestic demand.
Better-than-expected exports and China’s domestic fuel pricing controls have helped weather the energy shock, but higher input costs threaten to squeeze already thin factory margins and further reduce consumer spending if the conflict continues.
Data from the National Bureau of Statistics (NBS) showed on Monday that factory output rose 4.1 percent year-on-year at the beginning of last month, compared with a 5.7 percent rise in March; It missed a Reuters poll’s forecast for growth of 5.9 percent, marking the slowest growth since July 2023.
“Exporters’ strong performance helped alleviate weaknesses in domestic demand, but was not enough to fully offset it,” said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.
Exports accelerated in April as factories raced to meet a wave of orders from AI-related sectors and other buyers amid fears that the Iran war could push global input costs even higher.
Zhang did not expect the government to change its policy stance due to just one month of weak data, and said Beijing would likely reassess its policy stance in July when second-quarter GDP data is available.
Retail sales, a gauge of consumption, rose just 0.2 percent in April, falling sharply from 1.7 percent in March to its weakest increase since December 2022. The numbers were also well below forecasts of a 2 percent increase.
The fragility of household consumption was highlighted in domestic car sales in April; It fell 21.6 percent in April from the previous year, its seventh consecutive decline, even as automakers stepped up efforts to expand in foreign markets to offset weakness at home.
“Retail sales growth in the first four months of 2026 signals that household demand is still weak, with consumers focusing on selective discretionary and upgrade categories rather than broad-based consumption,” said Yuhan Zhang, chief economist at the Conference Board’s China Center.
He said the split underscores a two-speed recovery: steady spending on small lifestyle and technology upgrades, but weak appetite for big-ticket, credit-based purchases tied to housing and income.
The nationwide survey-based unemployment rate fell to 5.2 percent in April from 5.4 percent in March.
Chinese stocks put the weak data behind and were generally flat as investors turned their focus to rising tensions in the Middle East and global bond sales.
The April figures gave the first signs that China’s momentum in the first quarter was already weakening and came after US President Donald Trump’s state visit to China.
While the summit helped ease tense relations between the world’s two largest economies, it offered few surprises.
China and the United States agreed to expand agricultural trade through tariff reductions and overcome market access problems with non-tariff barriers, but significant progress on trade and investment remained elusive.
The Chinese economy grew by 5.0 percent in the first three months of the year, at the upper end of the 4.5 percent to 5.0 percent range set by Beijing for the whole year.
However, analysts warned that the recovery was on uneven ground as industrial production continued to exceed domestic demand.
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