China Outlook 2026: Three Issues Shaping the Year Ahead

China is closing out 2025 with noticeably greater confidence on the international stage than it showed at the start of the year. The country responded first among major economies to U.S. “Liberation Day” tariffs and has increasingly leveraged its rare earths resources. Domestic technology firms navigated U.S. chip restrictions and introduced lower-cost artificial intelligence models that compete with pricier U.S. offerings such as those from OpenAI, contributing to an improved global perception of China. Whether that external posture reflects equivalent strength across the domestic economy is less certain. Senior leaders are expected to set policy priorities for 2026 at the annual Central Economic Work Conference next week; while official dates have not been announced, the meeting ran from Dec. 11 to 12 last year. Below are three principal headwinds economists are monitoring.

The real estate sector’s troubles deepened this year, with recent attention focused on the financial strain at developer Vanke. Once among the country’s largest builders by sales and a widely recognized brand, Vanke is seeking to postpone repayment of a 2 billion yuan ($283 million) onshore bond due Dec. 15, a development that prompted S&P Global Ratings to downgrade the company’s debt late last week. Edward Chan, director of corporate ratings at S&P Global Ratings, warned that homebuyer confidence is already fragile and that distressed financing at a major developer could further undermine sentiment and weigh on property sales nationwide. Goldman Sachs reported that new home sales in November fell by 20% to 30% year on year and said the likelihood of additional property-easing measures has risen. As of October, average monthly sales across the country remained 65.3 billion yuan below 2024 levels, underscoring the difficulty in identifying the threshold at which authorities would view the situation as broadly alarming.

Policymakers have signaled renewed emphasis on boosting domestic consumption following a five-year planning meeting in late October, a shift that preceded high-level trade talks involving senior leaders, including President Xi Jinping. Last week, six ministries jointly published an ambitious plan to develop consumer industries from electronics to sporting goods, targeting at least three sectors to reach 1 trillion yuan each by 2027 and another 10 sectors to attain 100 billion yuan in the same period; the document did not specify funding sources or implementation details. Goldman Sachs analysts noted the plan’s strong supply-side focus and highlighted its emphasis on integrating AI into consumer product development and services, while cautioning that sustained consumption growth will likely require policies that support job creation and income gains. Household financial stress is a particular concern: Natixis reported that the household bad loan ratio reached 1.33% in the first half of the year, exceeding the corporate ratio of 1.2%, and Natixis senior economist Gary Ng observed that households have fewer restructuring options than businesses amid ongoing pressure from the property and labor markets.

Post-pandemic consumer behavior in China has trended toward greater price sensitivity, and firms have increasingly competed through discounts. Even with extended promotions from early October to mid-November, the country’s largest shopping event saw sales growth slow to 14.2% from 26.6% a year earlier, according to third-party analysis. Headline inflation has remained close to zero in recent months, while core CPI, which excludes food and energy, rose 1.2%—a modest gain that offers limited reassurance. Nomura’s chief China economist Ting Lu estimated that roughly one quarter of the core inflation increase reflected a surge in gold prices; excluding that effect, core CPI was about 0.9% in October. Lu expects Beijing to introduce stronger policy support in the spring to provide momentum for the forthcoming five-year plan. China will publish November inflation data on Dec. 10, followed by retail sales, industrial production and investment figures on Dec. 15.