China Data Points to Firm Start to 2026 Despite External Risks

China posted a solid start to 2026, with key activity indicators exceeding expectations in the combined January–February period, according to the National Bureau of Statistics. Industrial output and retail sales both grew faster than forecast, highlighting momentum in manufacturing and consumer spending. Fixed-asset investment also surprised on the upside, rising 1.8% against market calls for a 0.4% decline. Meantime, the surveyed jobless rate averaged 5.3%, unchanged from the same period a year earlier, suggesting broadly stable labor market conditions. Despite the upbeat data, the agency cautioned that challenges remain. It warned of intensifying external pressures, elevated geopolitical risks, and persistent domestic structural issues. Some enterprises continue to face operational strains amid the country’s economic transition. The statistics bureau stressed that policymakers must balance sustaining growth momentum with strengthening resilience in an uncertain global environment.

China set its 2026 economic growth target at 4.5%–5%, the lowest level goal since 1991, and after keeping an “around 5%” target for the past three years. During the opening of the annual legislative session Thursday, Premier Li Qiang said Beijing aims to sustain momentum after the economy met its 2025 target, helped by resilient exports despite trade tensions with the U.S. To underpin growth, Beijing will keep the fiscal deficit at 4.0% of GDP and set a consumer inflation target of around 2.0%, signaling efforts to ward off deflation after prices were flat last year amid weak demand. Stabilizing employment remains a priority, with plans to create 12 million urban jobs and cap the jobless rate at 5.5%, unchanged from 2025. In addition, local governments will be allowed to issue CNY 4.4 trillion in special-purpose bonds to fund investment projects. At the same time, CNY 1.3 trillion of ultralong treasury bonds will also be issued, matching last year’s quota to reinforce fiscal support.

The International Monetary Fund kept its 2026 growth forecast for China unchanged at 4.5%, while warning that weak domestic demand and a slowing global economy pose downside risks. In its annual 2025 review released on Wednesday, the global lender said China’s economy expanded 5% in 2025, meeting Beijing’s official target, though the GDP deflator continued to decline, signaling persistent price pressures. The IMF described a “deeper-than-expected” downturn in the property sector as the main domestic risk, while renewed trade tensions represent the key external threat. It also called on policymakers to scale back industry support by cutting subsidies from 4% of GDP to 2%, restructure the debt of unsustainable local government financing vehicles, and take steps to curb future debt accumulation.