A reasonable forecast of China’s GDP growth is important for a number of reasons. First, Chinese and foreign companies alike must make sales projections, input availability plans, and competitor strategies based on how fast the world’s second-largest economy is growing. The difference between China growing 2% and 5% is half a trillion dollars in demand and the profitability of many Fortune 500 firms hinges on which is right. Second, the Chinese people themselves need policies built on sound forecasts. More than 600 million Chinese live on less than $2,000 a year. If Beijing cannot acknowledge the extent of the macroeconomic slowdown, it cannot address their needs. Finally, accurate economic projections are the acid test of what China can offer in deal-making. Without domestic demand growth, Beijing cannot offer Africa market access. It cannot fulfill promises to the Trump administration to engage in a constructive, mutually beneficial trading relationship that dials down global imbalances. The strategies of major nations must be calibrated to how China is actually doing, not to how China wishes it were doing.
After pivoting to prioritize household income and consumption in late 2024, Beijing stepped up its policy rhetoric in the fourth quarter of 2025, signaling that it would restore consumer and business expansion in 2026. The December 15 edition of the Communist Party’s theoretical journal Qiushi led with a ten-year compilation of commentaries by Xi Jinping, entitled “Expanding Domestic Demand is a Strategic Move.” One day earlier, Xi was quoted on the front page of People’s Daily calling on local cadres to stop inflating economic growth for the sake of self-serving political promotion. The National Development and Reform Commission and Qiushi editorial board have followed with their own commentaries making the strategic case for promoting consumption as the key pillar of domestic demand.
Taken together, these are the strongest pledges to address the demand problem in China’s system since 2015. However, similar pledges have been made throughout the past decade without follow-on action to produce durable structural adjustment. Fundamentally, unlocking new sources of domestic consumption growth requires an overhaul of the fiscal system, as we have discussed in detail the past two years (see No Quick Fixes: China’s Long-Term Consumption Growth and How Can China Boost Consumption?). This revamp would need to address the rural-urban divide, the precarious position of migrant workers, and the systemic misallocation of capital by SOEs and banks. There is no concrete sign of such a restructuring underway, and these changes would certainly slow growth before lifting it, with a lag time of more than a year before benefits arrive and even longer before consumers and business decision-makers behave with confidence.
Though Beijing’s recent rhetoric is significant, we recommend doing the 2026 math on the assumption that present reform signals will not alter expenditure component trajectories as projected based on 2025. And while the extent of the decline in investment was the key uncertainty for 2025, the most important variable influencing the real economic growth rate in 2026 will be China’s export performance.
Investment
The year begins with weak momentum for new investment, given slowing credit growth and declining producer prices. Manufacturing investment remains under pressure, while the fading fiscal impulse should also limit infrastructure spending. Even a successful anti-involution campaign based on restricting capacity to boost profitability and prices will discourage new manufacturing investment in the short term. But more likely, nascent policies to restore profitability—and thus the appetite of businesses to invest beyond a handful of export industries—will fall short of that goal.
The property market is also likely to weaken early in 2026, even though the case for a medium-term stabilization in activity is intact: Construction appears to be trending below our estimated long-term equilibrium levels of activity. Support from the property sector will largely depend upon sales picking up and subsidized mortgage rates stabilizing prices. Given no meaningful support from fiscal policy, any acceleration in investment will need to come from the private sector, either from the prospect of an end to deflation or a significant acceleration in credit growth from its current pace of 6-7%. As a result, we would expect an ongoing decline in aggregate investment in 2026.
Household consumption
Consumption momentum is weak heading into 2026, with year-on-year retail sales growth barely exceeding 1% and declining in sequential terms. The range of expectations for next year mainly depends on the size and product scope of trade-in subsidies, but these are unlikely to expand significantly relative to 2025. Any strength is more likely to appear in services spending, which held up better than goods consumption toward the end of this year. In a best-case scenario, consumption could contribute 1.5 pp to growth, similar to recent years.
The continued shortfall in domestic demand has reinvigorated longstanding public debate among Chinese economists regarding the sources of and solutions for China’s low consumption rate. Some economists have argued that China’s goods consumption is adequate by international standards, but that policy focus should shift to boosting services. In September, ten economic ministries released a set of policy measures specifically aimed at promoting services consumption. This may help 2026 spending on the margins, but more fundamental reforms that lift income growth and reduce China’s high savings rate would take multiple years to bear fruit.
Government consumption
We expect a flat contribution of government consumption to growth in 2026. The CEWC statement stated that Beijing will “maintain” a necessary fiscal deficit and spending levels, in sharp contrast to last year where it said Beijing would “increase” the fiscal deficit ratio and spending. The readout suggested that the central government will increase investment, but this mainly rebalances burden-sharing with local governments rather than creating an overall spending increase.
Given widening deficits and the need to improve revenue collection, significant fiscal stimulus is unlikely next year. Fiscal constraints will only intensify going forward as Beijing continues to prioritize local debt resolution and looks to boost revenue amid persistent pressure on value-added tax, enterprise income tax, and land sales. Beijing has previewed some incremental expansions to public spending on social services, for instance a pledge to fully cover childbirth costs starting in 2026. Official messaging is more strongly emphasizing the need to balance “investment in people” with the traditional “investment in things” such as physical infrastructure. However, fiscal and political realities will cap new social spending at a modest level.
Net exports
The most important variable for China’s 2026 growth is exports, hinging on how long they will hold up and whether or not China can continue to expand its global export market share. Beijing appears to believe that export strength will continue, which was reflected in a more neutral characterization of the external environment in the CEWC statement.
As of the start of the year, net exports are more likely to contribute to growth in 2026 than represent a drag on the economy. So far, there has been no coordinated global pushback against Chinese exports, in part because US tariffs have prevented some countries from fighting a trade war on two fronts, particularly in Europe. In addition, Chinese exports will remain competitive as the RMB continues to depreciate in real terms against a broad currency basket. Structural weakness in imports is also likely to continue.
However, there is a significant downside risk to our expectation of 1.0 to 1.5 pp of GDP growth from net exports. Europe or emerging markets could push back more strongly against Chinese trade practices. External demand and inventory restocking in developed economies (both a function of global macroeconomic performance, which the IMF sees slowing again in 2026 after slowing in 2025) also remain risks to China’s export hopes.
Conclusion
Our 2025 GDP estimate depended on how bad investment was for the year: Capital formation was worse than any time since early-COVID, and at the end of the year it was still deteriorating. Surging net exports kept China’s growth afloat, but at the expense of larger deficits for the rest of the world this year. In 2026, China will be even more dependent on that surplus for growth. A downturn in export growth would have a much larger effect, given weak domestic demand and the limited scope for fiscal policy.
Beijing’s talk of domestic demand spurring reforms will be the water cooler conversation in Davos, Washington, and meetings with foreign friends. But any belief that changes are truly being enacted should be tempered by a close understanding of China’s present systemic growth problems, its track record of similar pledges, and hard evidence.
The gap between China’s official narrative and economic reality has been widening for some years. Our adjustments to China’s official data from 2022-25 suggest that the level of real GDP this year is around 11% lower than official numbers claim, with most of the adjustment in the investment (or gross capital formation) component of GDP. This would imply a decline of roughly 9 pp of global investment share from 2021 to 2025, which would go a long way to explaining the surge in Chinese exports and growing concerns about China’s external imbalances (Figure 7).