China’s Economy Outpaces Forecasts Amid Global Turmoil from Iran Conflict

China’s economy expanded more rapidly than analysts had predicted in the first quarter of the year, even as the global economy grappled with the fallout from the ongoing US-Israel war with Iran.

Official figures show that gross domestic product (GDP) increased by 5% compared to the same period last year, exceeding economists’ expectations of around 4.8%.

The stronger-than-anticipated performance comes despite significant disruption caused by the Middle East conflict, which began on 28 February and has severely affected global energy supplies. Asian economies, in particular, have felt the strain.

This latest data release also marks the first set of GDP figures since Beijing lowered its annual growth target last month to between 4.5% and 5%—the country’s most modest goal since 1991.

The uptick follows a weaker 4.5% expansion in the previous quarter and was largely driven by gains in manufacturing. However, the broader economic picture remains mixed, as declining property investment continues to weigh heavily on growth in the world’s second-largest economy.

Exports, particularly in the automotive sector, stood out as a key driver of growth. As Kyle Chan of the Brookings Institution noted, cars and other outbound goods were a “major bright spot” in the data. Still, he cautioned that the full economic consequences of the Iran conflict have yet to materialize, warning that “next quarter's GDP figure is likely to be weaker due to trade disruptions caused by the conflict.”

China’s updated economic targets and broader policy direction were unveiled in March as part of its latest Five-Year Plan. Authorities have committed to increasing investment in innovation, high-tech industries, and initiatives aimed at boosting domestic consumption.

These efforts are part of a broader push by the ruling Communist Party to restructure the economy, which continues to face challenges including subdued consumer demand, demographic decline, and a prolonged downturn in the property sector.

Externally, China is contending with mounting pressures, including rising energy costs linked to the Iran war and ongoing trade tensions with the United States. Tariffs imposed under President Donald Trump currently stand at 10% for most Chinese goods.

However, US Treasury Secretary Scott Bessent indicated that these duties could revert to previous levels by early July, following a Supreme Court decision that struck down several import taxes.

Meanwhile, a meeting between Trump and Chinese President Xi Jinping is expected to take place in China in May.

Trade data released on Tuesday paints a more cautious picture. China’s export growth slowed sharply in March to 2.5% year-on-year, marking a six-month low. The slowdown follows a surge of over 20% in combined exports for January and February, which had been driven by strong global demand for electronics and manufactured goods. China typically combines trade figures for these two months to account for fluctuations caused by the Lunar New Year holiday.

Imports, on the other hand, rose significantly—by nearly 28% in March—resulting in a monthly trade surplus of just over $50 billion (£36.85 billion), the lowest level in more than a year. According to Yixiao Zhou of the Australian National University, the sharp rise in import values is likely tied to increasing global costs stemming from the Iran conflict.

Tensions in the region have escalated after Iran threatened vessels attempting to pass through the strategically vital Strait of Hormuz, pushing up the price of crude oil and oil-derived materials such as plastics.

While China is less dependent on Gulf oil compared to countries like Japan and South Korea—both of which have been heavily impacted—rising fuel costs are still being felt domestically. Petrol prices have climbed, and some Chinese airlines have reduced flights in response to surging jet fuel costs.

Zhou also warned that the conflict could eventually dampen China’s export performance if global consumers begin to cut back spending due to higher prices. “Export growth ultimately depends on your trading partners' economies,” she said. “It is hard to sustain that growth at a very high rate continuously.”

By fLEXI tEAM