The conflict in the Middle East has exposed a key fault line: as the world's biggest energy importer and a heavily export-reliant economy, China is vulnerable to an oil shock already slowing trade, lifting factory costs and darkening the outlook for the year.
The world's second-largest economy grew 5.0 per cent over the first quarter from the year earlier, National Bureau of Statistics data showed on Thursday, beating analysts' expectations in a Reuters poll for growth of 4.8 per cent and compared with a 3-year low of 4.5 per cent in the fourth quarter.
Industrial output rose 5.7 per cent in March from a year earlier, slowing from 6.3 per cent growth in January-February, while retail sales, a gauge of consumption, grew 1.7 per cent last month, down from the 2.8 per cent gain in January-February. Analysts had forecast a 2.3 per cent rise.
"China's exports remain a key growth engine in 2026, but the recent energy shock has shifted the focus toward the sustainability of external demand," Xinquan Chen, China economist at Goldman Sachs, said in a note ahead of the release.
"While China's production is relatively resilient, its key trading partners - particularly lower-income emerging-market economies that account for nearly 40 per cent of exports – are increasingly exposed to stagflation risks."
Goldman Sachs was tipping first-quarter GDP growth at 4.7 per cent.
China's exports grew just 2.5 per cent in March year-on-year, slowing sharply from 21.8 per cent in January–February as the conflict drove up energy and transportation costs and weighed on global demand, though analysts cautioned the figure was also distorted by seasonal factors.
For the January-March period, exports still rose 14.7 per cent from a year earlier, well above the full-year growth of 5.5 per cent in 2025.
Citi analysts maintained their forecast of 5 per cent GDP growth for the first quarter, citing the solid export performance.
"That said, we are increasingly attentive to secondary demand effects should the conflict persist," they said in a note.
Early signs of strain are emerging. China's factory-gate prices rose in March for the first time in more than three years, signalling energy-driven cost pressures are seeping in and threatening already-thin corporate margins.
On a quarterly basis, the economy expanded 1.3 per cent in January-March, in line with the poll, and compared with 1.2 per cent growth in October-December.
Growth of fixed-asset investment eased to 1.7 per cent in the first quarter from 1.8 per cent in January-February - when infrastructure investment jumped 11.4 per cent year-on-year.
China has pledged to step up spending on major infrastructure and public services to help meet the 2026 growth target, the first year of the new five-year plan.
Fiscal expenditure rose 3.6 per cent in January–February, picking up from a 1 per cent increase in 2025 and adding to signs of stronger fiscal support.
Beijing has set a budget deficit of around 4 per cent of GDP for 2026 and lined up heavy bond issuance to support growth, while the central bank has pledged to keep policy accommodative despite limited room to cut rates as inflation edges higher.
China's Politburo, a top decision-making body of the ruling Communist Party, is expected to meet later in April month to assess the economic outlook.
