The Chinese economy demonstrated impressive growth in the first quarter, surpassing expectations, but the escalation of the conflict in the Middle East and the threat to global demand are causing experts to sound the alarm. Let's take a look at what is happening.
The beginning of 2026 brought China a noticeable economic upturn, fueled by a booming export sector. However, this promising trajectory faced a severe test when the conflict in Iran triggered a sharp spike in energy prices, jeopardizing global demand—a vital element for Beijing's expansive economic ambitions.
According to Reuters, China's gross domestic product (GDP) grew by an impressive 5.0% year-on-year in the first quarter. This figure was at the upper end of the annual target range (4.5–5.0%), which is a vivid testament to the resilience of the Chinese economy, favorably distinguishing it from many Asian countries. The secret to this success, as the news agency explains, lies in significant strategic oil reserves and a carefully diversified energy supply structure.
Pitfalls of the Export Model
Nevertheless, the Middle Eastern conflict ruthlessly exposed a critical Achilles' heel: China's export-oriented economic model, generating an annual trade surplus comparable to the size of the Dutch economy, critically depends on unobstructed maritime routes—both for the country itself and for buyers of its products.
Moreover, as the world's largest importer of energy resources and a dominant industrial power, China faces a serious problem: rising oil prices dramatically inflate production costs and squeeze the already modest profits of countless enterprises that employ hundreds of millions of people. The longer this unpredictable conflict lasts, the higher the risks become, and the mounting pressure is already palpable.
Expert Opinions and Warnings
Tianchen Xu, a senior economist at the Economist Intelligence Unit, commented on the situation for Reuters: "On one hand, we see resilience: the impact of the war with Iran on China is still very limited. On the other hand, there is an imbalance: a strong export sector amid relatively weak domestic demand."
It is worth noting that GDP growth in the first quarter exceeded not only analysts' forecasts (4.8%) but also the three-year low of 4.5% recorded in October-December. A representative of the statistical bureau characterized this achievement as "rare and commendable," but immediately warned of a "complex and unstable" external environment that could cloud future prospects.
Alarming Signals from March
However, March trade data has already begun to send alarming signals, hinting at rising tensions in the sector. Exports last month, according to Reuters, increased by only 2.5%, which starkly contrasts with the impressive growth of 21.8% observed in January-February.
And although producer prices in March escaped deflation for the first time in over three years, analysts caution: "bad inflation," driven by rising production costs, could pose an even more serious obstacle to sustainable economic growth than deflation itself.
