China's economy expanded 5% in the first quarter of 2026 compared with a year earlier, official data showed, exceeding analysts' forecasts and marking an acceleration from the 4.5% growth recorded in the final quarter of 2025. The National Bureau of Statistics said gross domestic product reached 33.42 trillion yuan (£3.6 trillion) in the January-March period. The growth was 0.5 percentage points faster than the previous quarter, according to the bureau. Deputy head of the National Bureau of Statistics Mao Shengyong said at a press conference that the Chinese economy got off to a good start, with main macroeconomic indicators improving and new growth drivers expanding rapidly.
Domestic demand was the main driver, contributing more than four-fifths of GDP growth in the first quarter, according to major media reports. Consumption and investment together accounted for 84.7% of first-quarter GDP growth, up nearly 30 percentage points year-on-year, the National Bureau of Statistics said. Retail sales grew 2.4% year-on-year in the first quarter, up 0.7 percentage points from the previous quarter, according to the bureau. Fixed-asset investment rose 1.7% year-on-year in the first quarter, reversing a 3.8% decline in 2025, major media reported. However, analysts cautioned that the recovery in domestic demand may not yet be on firm footing due to a slowdown in household income growth and elevated international energy costs, according to major media.
Inflation picked up in the first quarter, with China's GDP deflator improving from -0.6% to -0.1%, the highest in three years, according to Nomura. High-tech manufacturing contributed 32.6% of overall industrial output growth, up 6.1% year-on-year, major media reported. This sector's strong performance underscores the government's push to upgrade the economy and reduce reliance on traditional industries.
For the full year 2026, China has set an economic growth target of 4.5% to 5%, according to major media reports. This is the lowest expansion goal since 1991, according to two major media sources. The target was announced during China's 'two sessions' political gathering, major media reported. The lower target reflects structural challenges including weak domestic consumption, a property crisis, and trade tensions with the West, according to major media. China's economy has slowed in recent years after decades of growth, major media reported.
China's reflation has transitioned from hope or expectation to reality.
In 2025, China hit its 5% economic growth target as a whole, according to official figures. However, economic expansion slowed to 4.5% in the last three months of 2025, according to Beijing. More than two-thirds of China's provinces have scaled back their growth ambitions, major media reported, indicating a cautious outlook at the regional level.
China recorded the world's biggest-ever trade surplus of $1.19tn (£890bn) last year, major media reported. This surplus has drawn scrutiny from trading partners and contributed to trade tensions, particularly with the United States. The external environment remains challenging, with potential tariff increases and export restrictions looming.
Premier Li Qiang said the 15th Five Year Plan will include investments in innovation, high-tech industries, scientific research and efforts to boost household consumption, according to major media. Deutsche Bank upgraded its forecast for China's 2026 real GDP growth to 4.9%, according to the bank. Xiong Yi, Deutsche Bank's chief economist for China, described the reflation as having transitioned from hope or expectation to reality, according to The Independent. Ning Leng, a policy researcher at Georgetown University, said that while China hit its growth target last year, it should be taken with a grain of salt as other data suggests a weaker economic picture, according to BBC News.
Despite the strong first-quarter performance, uncertainties remain. It is unclear whether China can sustain the recovery amid headwinds such as weak household income growth, a prolonged property downturn, and escalating trade tensions with the West. The International Monetary Fund and other institutions have warned that structural reforms are needed to ensure long-term stability. The coming quarters will test whether the rebound in domestic demand is durable or merely a temporary boost from policy stimulus.