Recruiters from clothing factories and job-seeking labourers on a street in an urban village in Guangzhou, in southern China's Guangdong province, on April 16.JADE GAO/AFP/Getty Images
The Chinese economy expanded in the first quarter of this year, defying weak domestic consumption and the economic chaos unleashed by the U.S.-Israeli war against Iran, which has disrupted the global energy supply and sent stock markets whipsawing worldwide.
According to China’s National Bureau of Statistics, the country’s gross domestic product grew 1.3 per cent in the first three months of this year, a rate that would put the economy on track to expand by more than 5 per cent annually, above a conservative target of 4.5 per cent set in March, the lowest in decades.
Thursday’s results were largely driven by state investment and infrastructure spending, reliable sources of GDP growth that could belie wider problems with the Chinese economy, particularly a potential slowdown in exports and continued struggles to boost domestic consumption.
Analysts at the Economist Intelligence Unit said while “higher oil prices may have weighed on production and exports of textile and plastics,” in the long term the Iran war will not challenge the “fundamental pillars that underpin China’s export strength.”
These include data centre construction driven by the artificial-intelligence boom and stronger demand for renewable energy solutions, which has been boosted by the Iran war’s disruption of oil and gas supplies.
“On one hand you see resilience – the Iran war’s impact on China is very limited. On the other hand you see imbalance – a strong export sector versus a modest domestic demand,” said Xu Tianchen, a senior China economist at the EIU.
Pakistani army chief in Tehran in bid to renew U.S.-Iran talks
Speaking to delegates at the National People’s Congress in March, where the annual growth target was announced, China’s Premier Li Qiang said that “rarely in many years have we encountered such a grave and complex landscape, where external shocks and challenges were intertwined with domestic difficulties and tough policy choices.”
Mr. Li said particular attention would be given to expanding the domestic economy, long a priority, and an increasingly vital one because of an unpredictable international environment.
That does not mean reducing exports, however, and Mr. Xu and his colleagues said they remained optimistic about growth in foreign trade this year, based on an assessment “that the supply disruption emanating from the blockade of the Strait of Hormuz will not be perpetuated, and even if it is, China will feel the crunch later.”
Beijing on Tuesday denounced a U.S. blockade of the Strait of Hormuz as “dangerous and irresponsible.” The move has raised fears of a potential showdown between the two superpowers if U.S. naval vessels attempt to halt or detain a Chinese ship.
U.S. President Donald Trump denied any tensions, however, saying on social media that China was “very happy that I am permanently opening the Strait of Hormuz.”
“I am doing it for them, also – the World,” he wrote. “They have agreed not to send weapons to Iran. President Xi will give me a big, fat hug when I get there in a few weeks. We are working together smartly.”
According to state broadcaster CCTV, on Wednesday two Chinese vessels did successfully transit the waterway to Iranian waters without any “interference.” But another Chinese ship, the Rich Starry, turned around before reaching the U.S. blockade, according to the South China Morning Post, citing Chinese satellite data.
The Malawi-flagged Rich Starry has been blacklisted by the U.S. since 2023 for allegedly helping Iran dodge sanctions. As the ship was transiting from a port in the United Arab Emirates, it fell “outside the main scope of U.S. enforcement,” foreign affairs analyst Yue Gang, a retired People’s Liberation Army colonel, told the paper. But given the sanctions against it, and not wanting to “become a scapegoat,” the ship’s captain may have decided to exercise an abundance of caution, he added.
Speaking to his Iranian counterpart Wednesday, Chinese Foreign Minister Wang Yi urged Tehran to drop its own Hormuz blockade, noting “efforts to restore normal navigation in the strait are the unanimous call of the international community.”
Mr. Wang earlier praised Pakistan’s efforts to continue negotiations, which fell apart in Islamabad over the weekend, adding the “pressing priority is to do everything possible to prevent the resumption of hostilities and sustain the hard-won momentum of the ceasefire.”
Pakistani diplomats have arrived in Iran to push for further talks, something White House press secretary Karoline Leavitt said was “very likely,” adding “we feel good about the prospects of a deal.” Both signals were well received by investors, with markets across Asia rallying Thursday.
“The markets have already shaken hands, even though the diplomats are still arguing over the wording of the peace treaty,” veteran Canadian trader and analyst Stephen Innes wrote.
“Hope has given way to a bright, beaming light at the end of the peace tunnel. The market is no longer asking whether there will be a deal. It is trading as if the deal is already signed, sealed and quietly filed away.”
With a report from Reuters