China’s economy grows at 5% in year’s first quarter

China’s economy expanded at a rate of 5% in the first quarter of 2024, according to government data released Thursday, exceeding economist expectations and showing resilience despite global challenges stemming from the ongoing Iran war.

The January-March growth figure represents an acceleration from the 4.5% expansion recorded in the previous quarter. On a quarter-to-quarter basis, the economy grew by 1.3%, marking the fastest quarterly pace in a year.

These robust numbers come as China, the world’s second-largest economy, navigates through a complex global landscape affected by the seven-week-old Iran conflict, which has pushed energy prices higher and worsened inflation worldwide.

“China can likely weather short term disruptions, but a protracted war and higher for longer energy prices would likely start to bite into growth by the second half of the year,” said Lynn Song, chief economist for Greater China at Dutch bank ING.

The country’s industrial sector showed particular strength, with output rising 5.7% year-on-year in March, surpassing market expectations. This growth has been fueled by strong global demand for Chinese electronic equipment, automobiles, semiconductors, and robotics.

However, domestic consumption continues to lag, with retail sales increasing by just 1.7% from a year earlier, falling short of analyst estimates and slowing from the 2.8% growth seen in January and February. This underperformance reflects persistent weakness in consumer confidence.

The International Monetary Fund recently trimmed its economic growth forecast for China to 4.4% for 2026, part of a broader downward revision of global growth projections due to shocks from the Iran war. Chinese leadership had already set a relatively conservative growth target of 4.5% to 5% for this year, the slowest since 1991.

China’s ability to meet its economic targets last year despite domestic challenges was largely attributed to robust exports, which drove the country’s trade surplus to a record nearly $1.2 trillion. This occurred despite higher tariffs imposed under the Trump administration.

Experts believe exports will remain crucial to China’s economic performance this year, but this export-dependent model faces increasing risks.

“The lack of a speedy resolution to the Iran war is likely to dent global growth, which will negatively impact other economies’ ability to absorb Chinese exports,” warned Eswar Prasad, professor of economics and trade policy at Cornell University. “At a time when all countries are trying to protect their firms, households and economies from the fallout of the Iran war, the appetite for Chinese imports is clearly shrinking.”

Recent trade data supports this concern. On Tuesday, China reported that exports grew by only 2.5% in March compared to a year earlier, a significant slowdown from the previous two months, though analysts partially attribute this to seasonal factors.

The property sector remains a persistent drag on the economy. Years of slumping real estate markets have undermined both consumer and investor confidence, creating headwinds for domestic growth.

While economists believe China could still achieve its annual growth target through policy stimulus measures, this approach carries its own risks. Prasad cautioned that boosting public sector investment might stabilize headline growth figures but could exacerbate underlying deflationary pressures if household demand doesn’t significantly strengthen.

This would potentially increase China’s reliance on exports in the long term, creating vulnerability in an increasingly uncertain global trade environment where many nations are focusing inward to protect their economies from war-related disruptions.

As global economic conditions continue to evolve with the ongoing conflict, China’s ability to balance external trade strength with domestic consumption will be crucial to maintaining its growth trajectory through 2024 and beyond.