China's growth lost momentum in April, with industrial output cooling and retail sales sinking to over three-year lows as the world's second-biggest economy wrestled with higher energy costs from the Iran war and persistently weak domestic demand.
Better-than-expected exports and China's domestic fuel-pricing controls have helped weather the energy shock, but higher input costs threaten to squeeze already weak factory margins and further dampen consumer spending if the conflict drags on.
Factory output grew 4.1% from a year earlier last month, compared with a 5.7% rise in March, data from the National Bureau of Statistics (NBS) showed on Monday, missing a Reuters poll forecast for 5.9% growth and marking the slowest growth since July 2023.
"The strong performance of the exporters helped to mitigate the weaknesses in domestic demand, but not enough to fully offset it," said Zhiwei Zhang, president and chief economist at Pinpoint Asset Management.
Exports gathered pace in April as factories raced to meet a wave of orders from AI-related industries and other buyers seeking to stockpile components amid fears the Iran war could push global input costs even higher.
Zhang didn't expect the government to change its policy stance on just one month of weak data and said Beijing will likely reassess its policy stance in July when the second-quarter GDP data is available.
Retail sales, a gauge of consumption, rose just 0.2% in April, cooling sharply from 1.7% in March and sliding to their weakest gain since December 2022. The figures were also well below forecasts centred on a 2% increase.
The fragility of household consumption was underscored in April domestic car sales, which dropped 21.6% in April from a year earlier for their seventh straight month of decline, even as automakers ramped up efforts to expand in overseas markets to offset weakness at home.
"Retail sales growth in the first four months of 2026 points to still-weak household demand, with consumers concentrating spending on selective discretionary and upgrade categories rather than broad-based consumption," said Yuhan Zhang, principal economist at the Conference Board's China Center.
He said the split highlights a two-speed recovery: steady spending on small lifestyle and tech upgrades, but weak appetite for big-ticket, credit-driven purchases tied to housing and income.
The nationwide survey-based jobless rate nudged down to 5.2% in April from 5.4% in March.
Adding to the gloom, fixed-asset investment (FAI) contracted 1.6% in the first four months of 2026, compared with a 1.7% rise in the January-March period and a 1.6% expansion forecast.
Domestic crude steel output echoed the weak investment data, falling 2.8% from a year earlier.
"We believe weaker credit demand and heavy rainfall in southern China may have contributed to the April FAI decline compared with the first quarter," Lisheng Wang, economist at Goldman Sachs said in a note, cautioning that the occasional NBS "statistical correction" of previously reported data may have amplified the volatility.
China stocks looked past the weak data and were broadly flat, as investors turned their focus to escalating tensions in the Middle East and a global bond selloff.
Few surprises from Trump visit
The April figures offered early signs that China's first-quarter momentum was already fading and came after U.S. President Donald Trump finished his state visit to China.
The summit delivered few surprises even as it helped ease tense relations between the world's two biggest economies. China and the United States have agreed to expand agricultural trade through tariff reductions and tackle non-tariff barriers and market access issues, but substantive progress across trade and investment remained elusive.
Top Chinese leaders have pledged to strengthen the country's energy security, accelerate technological self-sufficiency and seek greater control of supply chains in response to external shocks.
China's economy expanded 5.0% in the first three months of the year, at the upper end of Beijing's full-year target range of 4.5% to 5.0%. However, analysts have warned that the recovery is running on uneven ground as industrial output continues to outstrip domestic demand.
While a protracted downturn in the property market remains a drag on growth, the Middle East conflict has exposed the economy to external risks at a time of fragile consumption at home.
China's property investment contraction widened in April year-on-year, but new home prices fell at their slowest monthly pace in a year, offering some signs of stabilisation as local governments deploy measures to boost sales and shore up sentiment.
ING expects a second-quarter economic slowdown is on the cards given a soft start in April.
"Weaker growth and rising inflation could complicate policymaking in the coming months," said Lynn Song, ING's chief China economist.
"We've seen limited urgency for stimulus so far this year, but if data continue to deteriorate, this could change soon."
(Reporting by Ellen Zhang, Ethan Wang and Joe Cash; Editing by Shri Navaratnam)
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