China's first-quarter GDP beat expectations, but economic divergence remains evident

Overview

This report assesses China's first-quarter GDP and major March economic activity data. Goldman Sachs notes that against the backdrop of a global energy shock, the data show divergence: manufacturing and exports are relatively strong, while real estate and household consumption are weak. Real GDP year-over-year growth rose from 4.5% in the fourth quarter to 5.0% in the first quarter, while nominal GDP growth also increased from 3.9% to 4.9%, driven by a rebound in inflation. However, fixed asset investment and retail sales both slowed in March, while services consumption continued to outperform goods consumption.

Core views

The core view is that although China's headline growth exceeded expectations, the internal structure remains unbalanced. Industrial production still maintained relatively high growth, but sectors such as non-metallic products, electrical machinery, computers, and other equipment dragged on March growth; automobiles and chemicals contributed relatively positively. Retail sales were significantly below expectations, with online goods, catering, automobiles, and home appliances weakening. Although real estate activity improved slightly from January-February, sales, investment, housing starts, and completions remained in year-over-year contraction. The report believes that macro data since the start of the year have been better than expected, especially with first-quarter real GDP near the upper end of the full-year growth target, reducing policymakers' urgency to introduce meaningful stimulus in the short term.

Analysis framework

The report uses a macro data decomposition approach, combining GDP, industrial production, fixed asset investment, retail sales, service sector output, real estate activity, and employment data for analysis, and compares actual figures with Goldman Sachs forecasts and Bloomberg consensus expectations. The report also focuses on year-over-year, seasonally adjusted quarter-over-quarter, year-to-date metrics, industry contributions, and base effects to assess growth momentum and policy implications.

Methodology notes

• Macro Data TrackingAsia-MAP scores

  Measures the strength of macro data relative to expectations using indicators such as GDP, industrial production, fixed asset investment, and retail sales.

  The report gives GDP a score of +5, while industrial production, fixed asset investment, and retail sales are scored 0, indicating that GDP significantly exceeded expectations, while the other activity data were more neutral or mixed.

• Growth ForecastingGoldman Sachs GDP forecast

  Assesses the path of future quarterly and full-year GDP based on year-over-year growth, seasonally adjusted annualized quarter-over-quarter growth, and historical data revisions.

  After incorporating the first-quarter GDP result and NBS historical growth revisions, the report still maintains its full-year 2026/2027 real GDP growth forecasts at 4.7% for both years.

• Economic Structure AnalysisIndustry and Demand Component Breakdown

  Identifies sources of growth and drags through components such as manufacturing, real estate, infrastructure, consumption, and services.

  The report notes that manufacturing investment improved and services consumption was stronger than goods consumption, but real estate, some industrial sectors, and retail consumption remained the main weak spots.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China macro assets

  Directly related

  Strengths

  Both first-quarter real GDP and nominal GDP improved, full-year growth forecasts remain at 4.7%, and short-term pressure to meet the growth target has eased.

  Weaknesses

  The recovery in domestic demand is uneven, with weak retail sales, real estate, and employment data.

  Comparison

  Real GDP was above Goldman Sachs' forecast and market consensus expectations, but retail sales were below both forecasts and consensus expectations.

  Risks

  If policy stimulus falls short of market expectations, pricing of policy easing in risk assets may retreat.

• Manufacturing and industrial production chain

  Positively related but differentiated

  Strengths

  March industrial production growth of 5.7% year over year was above expectations; automobiles and chemicals made positive contributions to changes in industrial production, and manufacturing investment growth accelerated to 4.8%.

  Weaknesses

  Industrial production slowed from January-February, with non-metallic products, electrical machinery, computers, and other equipment dragging significantly.

  Comparison

  Manufacturing investment was stronger than real estate and other investment, and industrial production was stronger than retail sales.

  Risks

  Front-loaded exports, a high base, and external tariff shocks may weaken subsequent industrial momentum.

• Consumption-related assets

  Slightly negative

  Strengths

  The services production index still grew 5.0% year over year, and services consumption continued to outperform goods consumption.

  Weaknesses

  March retail sales rose only 1.7% year over year, while growth in automobiles, home appliances, furniture, building materials, and catering slowed.

  Comparison

  Services consumption performed better than goods consumption, while gasoline and other refined oil product sales improved due to price factors.

  Risks

  Weak household demand and employment pressure may continue to suppress discretionary consumption.

• Real estate chain

  Negatively related

  Strengths

  The year-over-year declines in sales area and sales value, housing starts, and completions narrowed compared with January-February.

  Weaknesses

  Sales, construction, housing starts, completions, and investment all still declined year over year, and housing prices continue to face downward pressure.

  Comparison

  Real estate investment was significantly weaker than manufacturing and infrastructure investment.

  Risks

  If the real estate downturn continues, it may drag on local government finances, household wealth effects, and related building materials consumption.

• Policy-sensitive assets

  Expectation-driven

  Strengths

  Growth data were better than expected, reducing short-term risks of a sharp economic slowdown.

  Weaknesses

  Better-than-expected data also reduce the urgency for meaningful policy stimulus.

  Comparison

  The report has low expectations for large-scale stimulus measures at the April Politburo meeting.

  Risks

  Disappointment in policy expectations may affect the performance of real estate, infrastructure, and cyclical sectors.

Key data

• First-quarter real GDPup 5.0% year over yearAbove Goldman Sachs' forecast of 4.7% and Bloomberg consensus expectation of 4.8%; the fourth quarter was 4.5%.
• First-quarter nominal GDPup 4.9% year over yearThe fourth quarter was 3.9%; affected by a rebound in CPI and PPI inflation.
• 2026/2027 real GDP forecastboth at 4.7%The report keeps its full-year forecasts unchanged.
• March industrial productionup 5.7% year over yearAbove Goldman Sachs' forecast of 5.6% and the market consensus expectation of 5.3%, but below 6.3% in January-February.
• March fixed asset investmentup 1.6% year over year for the month; up 1.7% year over year year-to-dateBelow the single-month year-over-year growth of 1.8% in January-February; manufacturing investment improved but infrastructure, real estate, and other investment slowed.
• March retail salesup 1.7% year over yearBelow Goldman Sachs' forecast of 3.2% and the market consensus expectation of 2.4%; January-February was 2.8%.
• March services production indexup 5.0% year over yearSlightly below 5.2% in January-February, but still significantly above retail sales growth.
• National surveyed unemployment rate in March5.4%January-February was 5.3%; the surveyed unemployment rate in 31 major cities was 5.3%, above 5.1% in January-February.
• March commercial housing sales areadown 7.5% year over yearImproved from a year-over-year decline of 13.5% in January-February; sales value fell 13.4% year over year.
• March real estate investmentdown 11.3% year over yearJanuary-February was down 11.1% year over year, and real estate investment remained sluggish.

Impact & implications

For investment judgment, the report's main implication is that improved growth readings are insufficient to prove a full recovery in domestic demand; manufacturing and export chains are relatively stronger, while consumption, real estate, and employment remain constraints. Better-than-expected macro data may reduce the probability of near-term additional stimulus, so assets highly tied to policy easing need to watch for the risk of declining expectations; meanwhile, services consumption is more resilient than goods consumption, and manufacturing investment is stronger than real estate investment.

Risks

• Global energy shocks and higher U.S. tariffs may drag on subsequent exports and industrial momentum.
• A renewed downturn in the real estate market may weaken investment, consumption, and confidence.
• Weak household consumption and the labor market may limit the recovery in domestic demand.
• NBS historical data revisions and differences in seasonal adjustment methods may affect judgments about true quarter-over-quarter momentum.
• If policy stimulus is weaker than market expectations, policy-sensitive assets may come under pressure.

What to watch

• The April Politburo meeting's language on stabilizing growth and stimulus policies.
• Whether second-quarter GDP quarter-over-quarter momentum slows from the first quarter.
• The recovery in automobiles, home appliances, furniture, building materials, and catering within retail sales.
• Whether real estate sales, housing prices, housing starts, and investment continue to improve or weaken again.
• Changes in contribution from automobiles, chemicals, electrical machinery, computers, and other equipment industries within industrial production.
• Changes in the national and 31 major cities surveyed unemployment rates, youth unemployment rate, and migrant worker unemployment rate.
• Whether CPI, PPI, and the GDP deflator turn positive in the second quarter.