China’s industrial output and investment exceed expectations in early 2026, but geopolitical tensions and fragile domestic consumption pose challenges.
BEIJING: China’s economy started 2026 on a stronger-than-expected note, with industrial production, retail spending, and investment all showing notable improvement in January and February. While the figures provide reassurance to policymakers, rising geopolitical tensions and cautious domestic sentiment continue to cloud the longer-term outlook.
Data from China’s National Bureau of Statistics (NBS) revealed that industrial output rose 6.3% year-on-year in the first two months, up from 5.2% in December and surpassing market expectations of 5%. Export-driven growth, particularly in technology sectors linked to AI, contributed significantly to this surge.
Retail sales climbed 2.8% in January-February, the strongest pace since October 2025, driven partly by the extended Lunar New Year holiday. Tourism spending jumped nearly 19% year-on-year, although average spending per trip declined slightly, indicating ongoing consumer caution. Large-ticket items, including passenger vehicles, saw significant declines.
Fixed asset investment, which covers infrastructure and property projects, increased 1.8%, rebounding from a 3.8% contraction in 2025. Infrastructure investment surged 11.4% thanks to state-backed financing for major projects.
Despite these gains, analysts warned that domestic consumption remains fragile and the economy is still heavily dependent on external demand and state-led investment. Household borrowing remains subdued, while the urban unemployment rate rose to 5.3% in early 2026.
Adding to uncertainty, the ongoing Middle East conflict has fueled volatility in oil prices and global markets. Experts say its impact on China’s economy will need careful monitoring in the months ahead, particularly as US President Donald Trump prepares for talks with President Xi Jinping later this month.
China has set a 2026 growth target of 4.5–5%, slightly below last year’s target. While officials have promised support for consumption, the measures announced so far stop short of an aggressive push to stimulate domestic demand.
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