Forecasting China's 2026 GDP: Challenges in Domestic and Export Growth

Forecasting China's Economic Trajectory in 2026

Understanding China's GDP growth projections is crucial for businesses and policymakers worldwide. A shift in economic growth from 2% to 5% represents a half-trillion-dollar difference, impacting Fortune 500 companies significantly. Additionally, more than 600 million people in China earn under $2,000 annually, necessitating informed policy decisions to address their needs. Moreover, accurate economic forecasting is essential for China to maintain promises of market access to regions like Africa and to uphold trade agreements that reduce global trade imbalances. It’s imperative that China’s performance is assessed based on actual data rather than aspirations.

In an effort to boost household income and consumption, China shifted its focus at the end of 2025. This was further emphasized in December with the Communist Party’s journal Qiushi featuring a compilation of Xi Jinping's commentaries on expanding domestic demand. Xi Jinping urged regional leaders to avoid inflating growth figures for political gain, as reported by People’s Daily. The strategic importance of consumption as a key pillar of domestic demand is backed by both the National Development and Reform Commission and Qiushi's editorial board.

Despite these strong pledges, previous promises lacked substantial follow-up to ensure durable structural changes. Significant reforms are needed to unlock new domestic consumption sources, including a fiscal system overhaul addressing the rural-urban divide and the precarious state of migrant workers. These changes, though crucial, are not currently in motion and would initially slow growth. The real impact, expected to take over a year, hinges on a comprehensive policy overhaul rather than minor adjustments.

Given Beijing’s current rhetoric, 2026 economic projections should proceed under the assumption that present policy signals will not significantly alter expected financial trajectories from 2025. While investment decline was a key concern in 2025, China's export performance is poised to be the most significant factor influencing real economic growth in 2026.

Investment Dynamics

The start of 2026 sees weak investment momentum, driven by slowing credit growth and falling producer prices. Manufacturing investment faces challenges, while diminishing fiscal stimuli are expected to constrain infrastructure spending. Even successful policies to boost profitability might discourage new manufacturing investment short-term. Without meaningful fiscal support, any investment acceleration will depend on private-sector optimism or a significant surge in credit growth from its current pace.

Household Consumption Trends

Household consumption enters 2026 with modest growth, as retail sales show minimal year-on-year improvement. Improvements depend on trade-in subsidies, though significant expansion beyond 2025 levels is unlikely. Services spending might see some strength, potentially contributing 1.5 percentage points to growth, mirroring recent trends. Policymakers are urged to focus on service sector growth, with targeted measures from economic ministries aimed at boosting services consumption.

Government Spending Outlook

Government consumption is expected to remain stable in 2026. While the central government plans to maintain fiscal deficits and spending levels, any increase primarily redistributes spending responsibilities rather than boosting overall expenditure. With fiscal constraints and revenue collection challenges, significant fiscal stimuli are improbable. Plans for moderate increases in public spending on social services, such as childbirth cost coverage, are highlighted, yet overall expansion will be limited by fiscal realities.

Export Performance

Exports remain the pivotal factor for China's economic growth in 2026. Competition in global markets and the RMB depreciation help maintain export competitiveness. No significant international resistance to Chinese exports is evident, partly due to US tariffs limiting trade conflict escalation. However, risks persist, with potential pushback from Europe or emerging markets and uncertainties around external demand impacting export forecasts.