China’s economy started the year on a steady note as factory output accelerated and consumer spending rebounded during the January-February period, offering some relief to policymakers grappling with structural challenges and rising geopolitical uncertainty.
According to data released by China’s National Bureau of Statistics on Monday, industrial output grew 6% year-on-year in the first two months of the year. The expansion was faster than December’s 5.2% growth and exceeded the 5% increase expected by economists in a Reuters poll. The latest reading marks the strongest growth in factory output since September last year.
The improvement comes shortly after trade data showed China’s exports significantly exceeded expectations in the same period. Rising global demand for artificial intelligence-related technology has played a key role in boosting China’s manufacturing sector, with stronger activity also supporting upstream industries.
Consumer activity also showed signs of improvement after a sluggish end to the previous year. Retail sales, a key gauge of consumption, rose 3% during January–February, accelerating from the 1% growth recorded in December. The figure also surpassed the 2.5% increase forecast by economists surveyed by Reuters.
Part of the increase was driven by the longer Lunar New Year holiday in February, which spurred travel and leisure spending. According to Reuters, total tourism spending during the holiday period rose nearly 19% compared with the same period last year, which had one less holiday. However, spending per trip slipped slightly, indicating that households remain cautious about discretionary spending.
Other indicators suggest consumer sentiment remains fragile. Reuters reported that passenger vehicle sales in China dropped 26% year-on-year during January and February, largely due to the expiration of tax breaks and a reduction in government subsidies for electric vehicles.
China typically releases combined data for January and February to smooth distortions caused by the Lunar New Year holiday, which shifts between months each year, Reuters noted.
Investment figures provided another positive signal for policymakers dealing with a prolonged downturn in the property market. According to Reuters, fixed asset investment, which includes infrastructure and real estate spending, rose 1.8% in the first two months of the year. This contrasted with expectations in a Reuters survey that had pointed to a 2.1% decline.
The improvement follows a 4% drop in fixed asset investment in 2025, which was the first annual decline in nearly three decades.
Despite the encouraging data, economists caution that China’s recovery remains uneven. Reuters reported that while exports and manufacturing continue to show resilience, household consumption remains weak. Lending data released last week pointed to sluggish household borrowing, highlighting continued caution among consumers.
At China’s annual parliamentary session that concluded last week, policymakers set the country’s economic growth target for this year at 4.5% to 5%, as per a news report by Reuters. The new target is slightly lower than last year’s “around 5%” goal, which was achieved largely due to a record trade surplus of just over $1 trillion, according to Reuters.
The heavy reliance on external demand has raised concerns among several of China’s trading partners and highlights the challenges the country faces in shifting toward more consumption-driven growth.
Economists also warn that China’s economic outlook is clouded by external risks. Reuters reported that the ongoing conflict involving the United States, Israel, and Iran has pushed up energy prices and injected fresh uncertainty into global trade flows.
The stronger-than-expected Chinese industrial data provided some reassurance to global markets, as resilient factory output signals continued demand for raw materials and intermediate goods used across global supply chains.
Commodity markets, particularly metals and industrial inputs, could benefit from stronger Chinese manufacturing activity since China remains the world’s largest consumer of many raw materials. Improved industrial output can also support Asian export economies that supply components to Chinese factories.
However, the persistent weakness in domestic consumption remains a concern for global investors. Sluggish household demand limits China’s appetite for imported consumer goods, affecting exporters from Europe, Japan, and other Asian economies.
Meanwhile, rising geopolitical tensions in the Middle East continue to create volatility across global markets. Reuters reported that the conflict involving Iran has driven energy prices higher, increasing inflation risks and complicating interest-rate decisions for central banks around the world.
For investors, the mixed signals from China, strong industrial production but weak household consumption, highlight the delicate balance facing the global economy. Markets will closely watch whether Beijing introduces stronger measures to stimulate consumer demand and stabilise the property sector, both of which are seen as critical for sustaining long-term growth.
Source Name : Economic Times