China Scales Back Fiscal Stimulus as Economy Shows Resilience Amid Iran Conflict
China has pulled back on fiscal stimulus in March 2026 as the economy demonstrated resilience at the start of the year despite disruptions from the war in Iran. According to Ministry of Finance data released on April 25, 2026, a broad measure of public expenditure fell 2.5% year-on-year, marking the largest decline since October 2025.
The pullback comes amid stronger-than-expected economic performance in the first quarter of 2026. China’s gross domestic product grew by 5.0% year-on-year in Q1 2026, exceeding the upper end of the government’s annual target range of 4.5% to 5.0% and surpassing analyst forecasts of approximately 4.8%. This growth was primarily driven by robust industrial production, which increased 6.1% year-on-year, significantly outpacing retail sales growth of 2.4% over the same period.
Despite the stimulus scaling back, China’s export strength has helped mask ongoing weakness in domestic consumption. The country’s trade surplus reached a record $1.2 trillion in 2025, underscoring the continued reliance of its growth model on external demand. Meanwhile, the first quarter of 2026 saw an initial export surge that preceded the full impact of the Iran conflict on global energy markets and trade flows.
The fiscal tightening reflects a broader policy shift as authorities respond to improving economic conditions while managing risks from the ongoing conflict. Officials have indicated that future fiscal adjustments will depend on how the war affects global maritime trade routes—critical for China’s export-led economy as both the world’s largest manufacturer and a major trading nation.
As of April 25, 2026, China continues to navigate a complex economic landscape marked by resilient headline growth, persistent domestic demand weakness, and external pressures from regional conflict. The government’s approach appears to be shifting from broad stimulus toward more targeted support, balancing growth objectives with fiscal prudence in an uncertain global environment.