China's economy delivered a robust start to 2026, with gross domestic product expanding 5.0% year-on-year in the first quarter to 33.42 trillion CNY (approximately US$4.9 trillion), according to data released by the National Bureau of Statistics (NBS) on April 16. The growth excedeed market expectations of 4.8% and accelerated from 4.5% in the previous quarter. 

Domestic demand drove more than four-fifths of the expansion. Consumption and investment together accounted for 84.7% of first-quarter GDP growth, a year-on-year increase of nearly 30 percentage points, indicating a shift towards a growth model mostly driven by internal (domestic) demand.

On a sectoral basis, primary industry expanded 3.8% year-on-year to 1.1941 trillion CNY, secondary industry grew 4.9% to 11.6135 trillion CNY, and tertiary industry rose by 5.2% to 20.6117 trillion CNY. 

Financing Conditions

The People's Bank of China (PBOC) release of first-quarter financial statistics reveals a financing landscape that remained broadly accommodative despite some moderation in terms of growth.

Outstanding aggregate social financing stood at 456.46 trillion CNY at the end of March, growing 7.9% year-on-year. Meanwhile, the increase of aggregate social financing reached 14.83 trillion CNY in the first quarter, only 354.5 billion CNY less than the same period in the previous year, maintaining a historically high level. On a monthly basis, March saw new social financing of 5.23 trillion CNY, down 670.1 billion CNY year-on-year but up 2.84 trillion CNY from February in seasonal terms.

From a financing structure standpoint , bank lending remained the dominant channel. RMB loans to the real economy increased by 8.9 trillion CNY, albeit down 796 billion CNY from the same period last year. Enterprise bond financing showed notable strength, with net issuance reaching 1.05 trillion CNY, up 521.3 billion CNY year-on-year, reflecting improving direct financing channels. Government bond net financing came in at 3.54 trillion CNY, down 330.3 billion CNY compared to the previous year, while equity financing by non-financial enterprises increased by 21.1 billion CNY to 117.3 billion CNY.

The M2 money supply rose 8.5% year-on-year to 353.86 trillion CNY, while M1 grew 5.1% to 119.32 trillion CNY, with the M2–M1 gap narrowing, a sign that economic endogenous momentum is gradually building. The currency in circulation (M0) expanded 12.5% to 14.71 trillion CNY.

Moving to the deposit side, total RMB deposits increased by 13.73 trillion CNY in the first quarter. Household deposits led such increase, rising by 7.68 trillion CNY, followed by non-financial enterprise deposits (2.68 trillion CNY) and non-banking financial institution deposits (2.03 trillion CNY).

On the cost side, financing conditions remained favorable. According to PBOC statements from its first-quarter monetary policy committee meeting, the benefits of the loan prime rate (LPR) reform have continued to be unleashed, and financing costs for the real economy have stood at historically low levels. The weighted average interest rate for newly issued corporate loans fell to approximately 3.1% in March, about 25 basis points lower than a year earlier.

Foreign Trade

Trade data released by the General Administration of Customs reinforced the resilience of China's external sector. Total goods imports and exports surged 15% year-on-year to 11.84 trillion CNY (approximately US$1.73 trillion) in the first quarter, making it the fastest quarterly growth in five years.

Exports rose 11.9% year-on-year to 6.85 trillion CNY, while imports jumped 19.6% to 4.99 trillion CNY, driven by strong domestic industrial demand and policy-supported consumption. However, monthly data revealed a sharp moderation in March, with exports standing at 2.23 trillion CNY, down 0.7% year-on-year, while imports increased by 23.8% to 1.87 trillion CNY. The sharp deceleration (from 21.8% growth in the January–February period to 2.5% in March) was partly attributed to the impact of the Iran conflict on oil prices, shipping costs and external demand.

High-value green technologies continued to lead export growth. Electric vehicle exports surged 77.5% year-on-year, lithium batteries grew 50.4%, and wind turbines (including components) increased 45.2%. Mechanical and electrical products accounted for 63.4% of total exports, reaching 4.34 trillion CNY, up 3.5 percentage points in share compared with the same period last year. Trade with Belt and Road Initiative partner countries totaled 6.06 trillion CNY, up 14.2% year-on-year, accounting for 51.2% of China‘s total import and export value.

Industrial Production

Industrial output rose 6.1% year-on-year in the first quarter, accelerating 1.1 percentage points from the fourth quarter of 2025. On a monthly basis, March industrial output grew 5.7% year-on-year, with a sequential increase of 0.28%.

Breaking down by sector, manufacturing led the expansion, rising 6.4%, followed by mining at 6.0%, while the electricity, heat, gas, water production and supply sector grew 4.3%.

High-tech manufacturing emerged as the standout performer, with value-added output surging 12.5% year-on-year, outpacing overall industrial growth by 6.4 percentage points. The sector‘s share of total industrial value-added reached 16.9%, contributing two percentage points to overall industrial growth and accounting for 32.6% of the total increase in industrial output.

Within high-tech manufacturing, specific segments showed exceptional results. The aerospace vehicle and equipment manufacturing industry grew 17.7%, while aircraft manufacturing surged 27.3%. Integrated circuit manufacturing expanded 49.4%, and biopharmaceutical manufacturing rose 14.8%. Specialized electronic materials manufacturing (hence those directly linked to artificial intelligence production and application) grew 32.5%. Among key products, 3D printing equipment output jumped 54.0%, lithium-ion batteries rose 40.8%, and industrial robots increased 33.2%.

Equipment manufacturing as a whole grew 8.9% year-on-year, outpacing overall industrial growth by 2.8 percentage points. The manufacturing purchasing managers‘ index (PMI) stood at 50.4% in March, up 1.4 percentage points from the previous month, while the business activity expectation index reached 53.4%, indicating continued optimism among manufacturers.

Industrial enterprise profits for January–February totaled 1.0246 trillion yuan, representing a robust 15.2% year-on-year increase.

Services Sector

The services sector grew 5.2% year-on-year in the first quarter, outpacing overall GDP growth. Within services, leasing and business services led with 12.2% growth, followed by information transmission, software and information technology services at 10.6%, and financial services at 6.5%. The services production index rose 5.0% in March, while the services business activity index stood at 50.2%, up 0.5 percentage points from February. The services business activity expectation index remained at a 54.8% level.

Investment Landscape

Fixed-asset investment grew 1.7% year-on-year in the first quarter, reaching 10.27 trillion CNY, reversing a 3.8% decline recorded for the full year 2025 and beating the previous quarter’s momentum. The rebound was driven primarily by policy-led infrastructure spending, as the government front-loaded fiscal support through accelerated bond issuance in early 2026.

However, underlying investment dynamics showed notable divergence. Manufacturing investment accelerated, supported by high-tech industrial expansion, but real estate investment continued to contract sharply, weighing on overall investment performance.

Retail Sales and Household Income

Retail sales of consumer goods expanded 2.4% year-on-year in the first quarter to 12.7695 trillion CNY, accelerating 0.7 percentage points from the fourth quarter of 2025. However, monthly data revealed a sharp slowdown in March, with retail sales growth decelerating to just 1.7% from 2.8% in February, falling below market expectations of 2.3%. Service-related retail sales grew at a stronger pace of 5.5% year-on-year.

From the income side, national per capita disposable income reached 12,782 CNY in the first quarter, up 4.9% year-on-year in nominal terms and 4.0% in real terms after adjusting for inflation. Urban residents‘ per capita disposable income stood at 16,549 CNY, up 4.2% nominally and 3.2% in real terms, while rural residents’ per capita disposable income reached 7,433 CNY, rising 6.1% nominally and 5.4% in real terms.

Per capita consumption expenditure totaled 7,955 CNY, up 3.6% nominally and 2.6% in real terms, indicating that households maintained a relatively cautious consumption stance despite income growth.

Real Estate

Property development investment continued to contract, falling 11.2% year-on-year to 1.77 trillion CNY in the first quarter, slightly better than market expectations of an 11.5% decline but representing a 0.1 percentage point widening from the January–February period. Residential investment dropped 11% to 1.35 trillion CNY, with the decline accelerating by 0.3 percentage points.

Construction activity remained under significant pressure. Total floor space under construction fell 11.7%, residential construction declined 12.1%, new construction starts plunged 20.3%, and completions dropped 25%.

On the demand side, new commercial housing sales by floor space fell 10.4% year-on-year, though the decline moderated by 3.1 percentage points from the January–February period, with residential sales down 13.1%. New commercial housing sales by value declined 16.7%, moderating by 3.5 percentage points, with residential sales down 18.5%.

Developer funding conditions remained challenging. Total funds available to developers fell 17.3% year-on-year, with domestic loans down 23.7%, presale receipts down 20.1%, and individual mortgage loans down 34.6%. Only self-raised funds showed a relatively smaller decline of 5.3%.

Inflation and Prices

Inflation trends showed signs of improvement as demand strengthened. The consumer price index (CPI) rose 0.9% year-on-year in the first quarter, accelerating 0.4 percentage points from the fourth quarter of 2025. The producer price index (PPI) fell 0.6%, significantly narrowing from a 2.1% decline for the full year 2025, with the year-on-year decline narrowing by 1.5 percentage points from the previous quarter and 2.0 percentage points from the full-year 2025 level.

On a monthly basis, PPI showed sequential improvement in each month of the quarter: January and February both saw 0.4% monthly increases, while March saw a 1.0% monthly increase, reflecting both domestic policy effectiveness and external input cost pressures. The PPI–CPI gap narrowed, indicating improving upstream vs. downstream profit distribution.

According to calculations by Japanese investment bank Nomura, China's GDP deflator, a broad measure of price levels across the economy, improved from -0.6% in the previous quarter to -0.1% in the first quarter, the highest in three years. Deutsche Bank’s chief economist for China noted that "China's reflation has transitioned from hope or expectation to reality," a trend that could improve corporate revenue and profitability and further support the recovery of investment and household income.

Employment level 

The surveyed urban unemployment rate averaged 5.3% in the first quarter, unchanged from the same period last year and within the government‘s annual target of around 5.5%. Monthly figures showed some seasonal variation: the unemployment rate stood at 5.2% in January, rose to 5.3% in February as some industries reduced labor demand ahead of the Lunar New Year holiday, going up to 5.4% in March as workers returned to the labor market after the holiday.

The employment situation varied across demographic groups. The unemployment rate for local registered urban residents was 5.4%, while that for migrant workers stood at 5.3%, with agricultural migrant workers experiencing a higher rate of 5.7%. For the 31 major cities, the surveyed urban unemployment rate was 5.3%. The average weekly working hours for employed persons nationwide was 48.1 hours.

Monetary Policy Outlook

The PBOC's Monetary Policy Committee held its Q1 2026 meeting on March 26 and reiterated its commitment to an appropriately accommodative monetary policy stance, with strengthened counter-cyclical and inter-temporal adjustments. The meeting noted that the shifting external environment has been exerting a deepening impact, with faltering global economic growth, recurrent geopolitical and trade conflicts, and diverging economic performance among major economies.

Domestically, the meeting acknowledged that China's economy still faces challenges including misalignment between strong supply and weak demand, as well as external shocks. The committee called for continuing to implement an appropriately accommodative monetary policy, intensifying counter-cyclical and cross-cyclical adjustments,enhancing coordination between monetary and fiscal policies to promote stable economic growth and foster a moderate recovery of price levels.

The committee also emphasized that liquidity will be kept adequate to ensure that the growth of aggregate financing to the real economy and the money supply are aligned with economic growth and the expected target level of prices. It pledged to keep overall social financing costs at low levels and to reduce intermediary financing fees.

Chief economist Wen Bin of China Minsheng Bank noted that the growth rates of social financing and M2 were significantly higher than nominal GDP growth, indicating that monetary policy remains supportive. He also suggested that if there are clear signs of weakening external demand, the intensity of counter-cyclical adjustments will be increased accordingly.

From a fiscal viewpoint, the government adopted a front-loaded approach in the first quarter. According to data from Wind, total government bond issuance reached 2.239 trillion CNY as of February 26, up 12% year-on-year, while new special local government bond issuance surged 60%. For the full year, the government has set a deficit-to-GDP ratio target of around 4%, with 4.4 trillion CNY of local government special-purpose bonds to be issued for key projects and infrastructure investment.

Summary and Outlook

China's 2026 Q1 data presents a picture of a resilient but uneven recovery. GDP growth accelerated to 5.0%, surpassing expectations, with financing conditions remaining broadly supportive, industrial production and exports performing strongly, and high-tech manufacturing showing substantial growth. The rebound in fixed-asset investment, driven by front-loaded infrastructure spending, marked an important turnaround.

However, significant headwinds remain. Domestic consumption growth remains subdued, with March retail sales slowing sharply below expectations. Household income growth decelerated, and consumption propensity fell to a three-year low, indicating continued caution among consumers. The property sector continues to contract, with declines in investment, construction, sales and developer funding all persisting, with some metrics showing marginal improvement.

External uncertainties have also intensified. Export growth moderated sharply in March, partly due to the impact of the Iran conflict on oil prices, shipping costs and external demand. The PBOC and other authorities retain ample policy room to respond to rising external risks, including further monetary easing, accelerated fiscal spending, and targeted support for consumption and the property sector.

The government has set an annual GDP growth target of 4.5% to 5% for 2026. With first-quarter growth coming in at the upper end of this range, analysts broadly agree that the economy has laid a solid foundation for achieving the annual target, though sustained policy support will be essential to address the weaknesses in domestic demand and navigate external uncertainties. Deutsche Bank upgraded its forecast for China’s 2026 real GDP growth to 4.9%, citing the strong start and improving reflation dynamics.

The ChiNext Index surged 3.17% to close at 3,626.27 points on the day of the GDP data release, reaching an 11-year high, reflecting improving investor sentiment. Meanwhile, the Kearney FDI Confidence Index showed China climbing two places to rank fourth globally, with China’s leadership in artificial intelligence and its vast domestic market cited as key sources of appeal.

As Wen Bin noted, the growth rates of social financing and M2 were significantly higher than nominal GDP growth, indicating that monetary policy remains supportive and will continue to provide steady support for the real economy through the remainder of the year. Whether this supportive environment can translate into a sustained pickup in domestic consumption and a stabilization of the property sector will be the key themes to watch in the coming quarters.

At PHC Advisory, we can offer you full support on matters regarding doing business in China, or any other issues your business may face. If you would like to know more about policies relevant to your business in Italy or Asia, please contact us at info@phcadvisory.com.  

PHC Advisory is a company of  DP Group: an international professional services conglomerate of companies with approximately 100 experienced professionals worldwide. We offer comprehensive services in tax, accounting, and financial consulting, including financial supervision, financial audit, internal audit, internal control over financial reporting, and support for audited financial statements and annual audits, ensuring clients' financial transparency and compliance. 

Would you like to learn more about the business environment in China? Click the link and download our Practical Guides on Amazon! 

The content of this article is provided for informational purposes only, financial advice must be tailored to the specific circumstances on a case-by-case basis, and the contents of this article do not legally bind PHC Advisory with the reader in any way. 

• Navigating India's New Era of Tax Transparency (2026)-NEWS-PHC ADVISORY

• When VAT Liability Arises Under Special Transaction Circumstances-NEWS-PHC ADVISORY