China says its economy is accelerating despite Iran war turmoil – for now

By John Liu, Simone McCarthy, CNN

Hong Kong / Beijing (CNN) — China said its economy expanded by 5.0% in the first quarter compared to the same period last year, exceeding expectations, as the Iran war upends global trade but warned it faced “volatile” external conditions.

The world’s second largest economy is the first major country to report first quarter Gross Domestic Product growth after the United States and Israel launched a war against Iran in late February. The US will report its figures at the end of April.

The 5% increase reported by the National Bureau of Statistics (NBS) is an acceleration from the 4.5% growth reported in the final quarter of last year, and it surpassed the average forecast of 4.8% from economists polled by Reuters.

Despite an acceleration in growth propelled by strong exports in the first two months of 2026, the Chinese economy is staring down an ominous reality as the conflict in the Middle East and the ensuing energy upheaval could topple global demand.

The NBS hailed strong growth among key macroeconomic indicators, marking a “solid start” for China’s economy this year, while warning of domestic and international headwinds ahead.

“External conditions have become more complex and volatile, while structural imbalances at home – marked by strong supply and weak demand – remain pronounced,” the authority said in a statement.

The Iran war has plunged the world into an unprecedented energy crisis, and China’s growth figures are offering a glimpse into how that turmoil is rippling through the global economy.

The International Monetary Fund cast a downbeat outlook over the world economy in a Wednesday report, warning of an oil shortfall this year.

China’s economy in recent years has remained under strain from a prolonged real estate crisis that began in 2021, and subdued household consumption. More recently, industrial overcapacity has given rise to cutthroat price competition that has put deflationary pressure on the economy.

Export reliance

China has relied on its manufacturing prowess to power its export-reliant economy, which boosted its trade surplus to a record-breaking level of 1.2 trillion last year, which no other country has achieved.

But while the country remains relatively insulated from an energy shock with its large amount of oil and gas stockpiles as well as diverse supply sources, its export reliance has also appeared to be a critical vulnerability.

Some worrying signs have emerged. After an impressive first two months of the year with a 21.8% year-on-year surge in exports, that figure plunged to 2.5% in March, as the war, which broke out on the last day of February, slowed shipments and increased logistical costs.

“The upshot is that while the Chinese economy is holding up well, it is becoming ever more dependent on external demand. The Iran War is likely to add to this trend, even if it has a limited impact on headline growth,” said Zichun Huang, a China Economist at financial advisory Capital Economics, in a Thursday note.

Even so, some analysts suggest that the war in the Gulf may not have a major impact on exports across the broader economy in the months to come, and instead cited seasonal distortions from the Chinese New Year holiday for the March downtick. For the full quarter, exports still grew 14.7%, above the 5.5% for the same period in 2025.

That’s because of China’s key strengths: its long-term efforts to upscale its manufacturing for higher value or high-tech goods, as well as its push to dominate green technologies, which the global oil shock is set to make even more in-demand.

“Despite the energy price shock, exports should stay solid in the coming quarters, thanks to strong demand for semiconductors and green technologies,” Huang said in another note earlier this week.

In the first quarter, China’s exports of green technologies did climb. Exports of electric vehicles, lithium batteries, wind turbine goods rose by 78%, 50%, and 45% year on year, customs officials said.

This is a developing story and will be updated.

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