China’s Economy Off to Steady Start in 2026 Amid Lowered Expectations
Better-than-expected performance in first two months of year opens space for Beijing to pursue goal of shifting toward consumption-led growth
- China said its economy began the year on a steady footing, providing leaders room to try to shift the country’s growth engine toward consumption.
- Retail sales increased 2.8%, fixed-asset investment rose 1.8%, and industrial output grew 6.3% in the January-February period.
- Data on the property sector continued to show signs of weakness.
BEIJING—China said its economy started the year on a steady footing, giving leaders more breathing room to try to shift the country’s growth engine toward consumption just days after lowering its official growth target for the year.
Readings on retail sales, fixed-asset investment and industrial output all came in roughly in line with expectations in January and February, though data on the property sector continued to show signs of weakness.
China’s National Bureau of Statistics combines January and February data to iron out distortions stemming from the shifting timing of the annual Lunar New Year holiday.
Monday’s figures came on the heels of Beijing earlier this month setting its lowest growth target in more than three decades. The decision to target gross domestic product growth of between 4.5% and 5% this year, compared with its recent practice of aiming for growth of “around 5%,” has been welcomed as a signal that policymakers are more serious about steering the economy toward consumption-driven growth and away from debt-fueled investment.
“A lower growth target allows officials to focus on the structural problems facing the economy, such as high levels of local government debt, low household spending, and a national market plagued by internal barriers to trade and investment,” analysts at Trivium China told clients in a recent note.
Tolerating a slower rate of growth gives policymakers more space to reduce overcapacity, weed out unprofitable companies and cut back on investments that are made purely to meet a growth target, said Allan von Mehren, China economist at Danske Bank.
As growth slows, scaling back debt-fueled manufacturing will mechanically raise consumption’s share of the broader economy, economists say. However, without additional stimulus planned for this year, they remain skeptical over how successful policymakers will be in persuading cautious Chinese consumers to spend more in the near term as a yearslong property slump drags on.
Beijing’s continued push for a stronger social safety net will eventually pay dividends, but the piecemeal annual improvements simply won’t move the needle on consumer spending in the short term. The Chinese leadership’s determination to bolster technological self-sufficiency also clouds their vision of China becoming “a mega-sized consumption powerhouse.”
For this year, Danske Bank’s von Mehren expects growth again to be mostly driven by robust exports and investments in technology, green energy and “smart infrastructure” projects.
The robust export momentum is already evident; official figures showed a surge in China’s outbound shipments at the start of this year, highlighting the continued strength of its export sector ahead of President Trump’s visit to Beijing later this month.
As Chinese officials gear up for a planned summit between Trump and Chinese leader Xi Jinping, Beijing is closely watching the unfolding conflict in the Middle East and its impact on the Chinese economy amid a tumultuous global energy market.
While higher commodity costs will likely help drive China’s headline price measures out of their long run of deflation in the coming months, analysts at Gavekal Dragonomics caution that this kind of cost-push inflation in an environment of weak demand threatens China’s corporate margins, investment and inflation-adjusted growth rate.
Retail sales, a gauge of consumption, increased 2.8% on the year in the January-February period, China’s statistics bureau said Monday. That handily topped the 0.9% growth rate recorded in December, and was roughly in line with the 3.0% increase projected in a Wall Street Journal poll.
Fixed-asset investment rose 1.8% on year in the first two months of the year, better than expected and a big improvement from the 3.8% decline recorded in 2025. Meanwhile, industrial output rose 6.3% during the same period when compared with the year-earlier period, better than expectations.
China’s real-estate sector suffered significant declines in the first two months of the year. Property investment fell 11% in year-over-year terms, while the total value of home sales dropped by 22% during the same period.
China’s headline measure of joblessness, the so-called urban unemployment rate, rose to 5.3% in February, from January’s 5.2% rate.