How Did China’s Economy Surpass Expectations Despite the Iran Conflict?

Analytical report prepared based on recent data. In the first quarter of 2026, China’s economy grew by 5 percent, exceeding economists’ forecasts. China disclosed that export growth slowed to 2.5 percent in March, while imports surged by 28 percent. The conflict with Iran poses risks to China’s energy supply and export sectors, potentially dampening economic growth in upcoming quarters. Kathmandu, April 18 – In the first quarter of 2026, China’s economy advanced at a faster pace than anticipated. Meanwhile, the war between the US and Israel against Iran has affected many nations worldwide.

Official data indicates China’s GDP rose by 5 percent compared to the previous year from January to March, surpassing economist projections of approximately 4.8 percent growth. Last month, China revised its annual economic growth target downward to between 4.5 and 5 percent, marking the first official GDP figure release under this reduced goal – the lowest growth target since 1991. The manufacturing sector made a significant contribution; previously, GDP grew by 4.5 percent in the prior quarter, but this time production played a more prominent role in driving growth.

Meanwhile, investment in China’s real estate sector continues to face downward pressure in the world’s second-largest economy. Kyle Chen, an analyst from the Brookings Institution, noted that automobiles and other exports heavily influenced the GDP figures. Chen stated, “The full impact of the Iran conflict is yet to be assessed. Future quarters could show a decline in GDP data due to these tensions.” China’s latest GDP targets and economic goals were incorporated into the newly announced Five-Year Plan in March.

China is committed to steering its economy in a new direction by heavily investing in innovation, high-tech industries, and domestic consumption. The ruling Communist Party is striving to reshape the economy, focusing on addressing challenges such as low consumption, a declining population, and a long-standing housing crisis. The Iran conflict has also caused China to endure an energy shortage. Additionally, global trade tensions and tariffs under former US President Donald Trump’s administration have intensified this crisis, with China currently subjected to a 10 percent American tariff on many products.

However, US Treasury Secretary Janet Yellen indicated on Tuesday that these tariffs might revert to their pre-introduction levels by early July, the rates that were in place before the Supreme Court struck down several import taxes. A bilateral meeting between Trump and Chinese President Xi Jinping in China is expected in May. On Tuesday, China released its export data for March, revealing a sharp slowdown in export growth, attributed to the conflict’s impact on rising living costs and reduced consumer demand.

March also saw an increase in China’s imports. Data from the General Administration of Customs released Tuesday shows that China’s export growth rate dropped significantly to just 2.5 percent in March — the lowest in the past six months. Exports were robust in January and February, with growth rates exceeding 20 percent due to high demand for electronics and manufactured goods. China combines the first two months of trade data annually to better capture fluctuations during the Chinese New Year holiday. Customs data also shows imports rose by nearly 28 percent in March, pushing China’s monthly trade surplus (the difference between exports and imports) to about $50 billion, though this is the smallest monthly trade surplus recorded in the past year.

According to Yixiao Zhu, an economics lecturer at the Australian National University, the rise in import values may largely be due to global cost increases triggered by the Iran conflict.

What impact could the Iran conflict have on Chinese exports? Iran’s threats to vessels using the Strait of Hormuz have driven crude oil prices higher, pushing up costs for products such as plastics. The crisis has severely affected major Asian economies like Japan and South Korea, while China’s dependence on Gulf countries for oil is comparatively lower. Nevertheless, gasoline prices in China have risen, and some Chinese airlines have cut flights due to more expensive aviation fuel. Zhu warned that if global consumers reduce spending due to the conflict, China’s export sector could be negatively impacted. He added, “Export growth ultimately depends on the economies of your trading partners. Sustaining high growth levels over a long period is challenging.”