The beginning of 2026 has brought an unexpected wave of optimism to the Chinese economy. Despite escalating geopolitical uncertainty triggered by the U.S.-Israeli conflict with Iran, the Middle Kingdom recorded a solid rebound in industry and investment during the January-February period.
The technology sector proved to be the key growth engine. Dynamic demand for Artificial Intelligence (AI) solutions pushed exports higher and drove industrial production, which increased by 6.3% year-on-year. This result significantly exceeded analysts’ expectations (who forecasted 5% growth) and marked a clear improvement over December’s figure of 5.2%.
However, the domestic situation remains complex:
Consumption influenced by holidays: Retail sales rose by 2.8%, the best performance since last autumn. This was bolstered by extended Lunar New Year celebrations, which translated into a 19% surge in tourism spending.
Wallet caution: While Chinese citizens traveled more, spending per trip dipped by 0.2%, and domestic car sales plummeted by 26%. This suggests that consumer confidence remains fragile.
Investment breakthrough: Following a dismal 2025—when fixed-asset investment fell for the first time in three decades—the start of this year brought a 1.8% increase. This was primarily driven by infrastructure projects (+11.4%), supported by new banking financing mechanisms.
Despite these positive signals, experts (including those from ANZ) are tempering expectations. They point to rising unemployment (climbing to 5.3%) and the persistent gap between robust external demand and weak domestic consumption. In the face of global energy market volatility, the stability of China’s growth in the coming months remains an open question.
