China Q1 GDP 5% on exports; Iran trade, sanctions pose risk

China’s economy expanded 5.0% year-on-year in the first quarter, the National Bureau of Statistics reported Thursday, outpacing analyst forecasts and improving on 4.5% growth in the final quarter of 2025.

Customs data showed exports were the main driver early in the year. Sales to foreign markets rose 21.8% in January and February, and quarterly exports climbed 14.7% compared with the same period in 2025. High-tech and green sectors led gains: electric-vehicle shipments increased 78%, lithium battery sales rose 50% and wind-turbine equipment exports were up 45%.

Mao Shengyong, deputy commissioner at the NBS, told reporters that external conditions have grown more complex and domestic imbalances remain pronounced. Retail spending cooled: retail sales rose 1.7% in March year-on-year, down from a 2.8% pace in the first two months. Industrial output expanded 5.7% over the same period.

The conflict involving Iran, which escalated at the end of February, has pushed up energy prices and disrupted shipping routes. Export growth slowed to 2.5% in March as transport costs rose and some routes were affected.

Zichun Huang, a China economist at Capital Economics, wrote that the economy is becoming more dependent on external demand and that the Iran conflict may add to that trend, while demand for semiconductors and green technologies should support exports in coming quarters.

The producer price index rose 0.5% in March from a year earlier, the first annual increase since September 2022. Analysts cautioned that higher oil and transport costs could put pressure on household budgets amid weak consumption. Ying Zhang, an analyst at the Economist Intelligence Unit, noted that retail momentum has faded as government subsidies from a 2024 appliance and car purchase program have waned and auto demand has softened, adding that the lack of structural reform so far could weigh on consumption in 2026.

Geopolitical tensions with the United States also affected trade and finance links. U.S. Treasury Secretary Scott Bessent warned this week that Washington stands ready to impose secondary sanctions on Chinese banks accused of processing Iranian funds; two Chinese lenders received warning letters, according to the Treasury. Bessent said U.S. officials had told those banks that proof of Iranian money flowing through their accounts could lead to secondary sanctions.

Other indicators showed changing external positions. China reduced its holdings of U.S. Treasury securities to $693.3 billion in February from $694.4 billion in January. The International Monetary Fund projects China’s economy will expand 4.4% in 2026. Last year’s trade surplus reached $1.2 trillion.

Officials said they will focus on supporting domestic demand and pursuing structural reforms to sustain growth later in the year.