China's economy grew about 5% in the first quarter — strong enough that Beijing is pausing new fiscal stimulus. The People's Bank of China left benchmark lending rates unchanged for an 11th month and signalled a cautious but supportive stance, while officials assess external risks including higher oil prices and trade tensions stemming from the Middle East conflict.

Why Beijing is holding fire

Chinese policymakers are moving more slowly on new stimulus because the economy has steadied at the start of 2026. Gross domestic product grew about 5% in the first quarter, up from 4.5% in the prior quarter. That pace sits at the top of Beijing's revised growth goal of 4.5% to 5% for 2026 and takes some pressure off both monetary and fiscal authorities to act immediately.

The People's Bank of China kept the one-year loan prime rate at 3.0% and the five-year LPR at 3.5% on Monday, marking an 11th consecutive month without a policy-rate cut. The central bank described its stance as "supportive" and "moderately loose," signalling it will lean toward stability rather than a fresh round of easing while it watches inflation and external risks.

That's partly because inflation has moved off the floor. China's factory-gate prices rose 0.5% in March from a year earlier, the first annual rise in more than three years, and consumer inflation climbed to 1.3% in February before easing to 1.0% in March. Those moves reduce the room for aggressive monetary loosening.

"The government may also need time to assess the impact of external uncertainties amid Middle East conflict," said Yu Song, chief China economist at UBS Securities. "Rising inflation reduces the PBOC's incentive to cut policy rates or roll out major easing soon."

Mastheads

What Beijing did earlier — and why it matters now

Beijing hasn't been inactive in recent months.

In 2025 authorities unveiled a package of monetary and fiscal steps to revive demand after a period of weak manufacturing and property weakness. The central bank cut the required reserve ratio by 50 basis points, freeing about 1 trillion yuan of liquidity for banks, and trimmed the seven-day reverse repo rate by 15 basis points to 1.85%, part of a push to get lending flowing again.

Those measures helped stabilise markets and credit conditions. But the early-2026 growth uptick means officials are now taking stock rather than piling on more stimulus. Finance Minister Lan Fo'an told international audiences that Beijing remains committed to "expand domestic demand and boost consumption, while providing more 'global public goods' for shared benefits." His comment signals continued willingness to use fiscal tools when needed — but not immediately.

Li Wei, chief economist at Standard Chartered Bank China, said the 2025 package sought to correct multiple weak spots at once, including trade headwinds and sluggish household spending. "What makes this economic downturn particularly challenging is the combination of external trade pressures coinciding with domestic consumption weakness," Li said. The earlier measures were designed to shore up both sides.

Middle East war, oil and the policy trade-off

Policymakers are balancing two opposing forces: resilient domestic growth versus rising global risks. Escalating conflict in the Middle East has lifted oil prices and pushed up import costs, tightening inflationary pressure. For a country long worried about deflation, any sign that prices are moving up reduces the incentive to cut rates aggressively.

Pan Gongsheng, governor of the People's Bank of China, warned at an International Monetary Fund meeting that "rising geopolitical tensions, protectionism, and trade barriers have weighed on global growth and fuelled financial market volatility."

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"Rising geopolitical tensions, protectionism, and trade barriers have weighed on global growth and fuelled financial market volatility," said Pan Gongsheng, governor of the People's Bank of China.

This article was created with AI assistance.