China 2026: A year of consolidation

China has entered 2026 facing the combined weight of a slowing economy and intensifying geopolitical pressure. The ongoing property slump and weak consumer confidence make for a very different China to that pre-COVID. To top it off, trade frictions have exacerbated the gap between China and many other countries.

That said, exports have been performing particularly well—perhaps too well—as 2025 saw China’s trade surplus pass a trillion dollars while China’s high-tech industries such as robotics and AI are innovating at breakneck speed. As a result, China’s stock market had a particularly good year throughout 2025.

Needless to say, the challenges are stacked high. The government is due to set its GDP growth target in March, which is expected to be a range from 4.5% and 5%, a modest number compared to previous goals which were always above 5. As we move into a new year, and the start of a new state-mandated Five-Year Plan, Beijing is taking stock and recalibrating, and how 2026 plays out depends on how these headwinds are faced.

“China’s strategy for 2026 reflects a deliberate recalibration,” says Ashley Dudarenok, founder of China innovation research firm ChoZan. “The 15th Five-Year Plan pivots toward what Beijing calls ‘New Quality Production Forces,’ which is essentially a systemic push for technological self-sufficiency and resilient domestic supply chains,” she says.

15th FiveYear Plan and the economic baseline

Ever since the founding of the People’s Republic in 1949, China’s economy has been managed by the party, with the overall framework being mapped out in five-year chunks. The latest is the 15^th Five-Year Plan, the plan for 2026-2030.

The new plan, even more than its predecessor, emphasizes technological self-reliance, industrial upgrading, energy security and what it terms “high quality development”—in short, a move away from manufacturing cheap, low-quality goods. Advanced manufacturing, semiconductors, AI, renewable energy and digital infrastructure all sit near the top of official priority lists.

Nick Marro, Principal Economist for Asia, Economist Intelligence Unit says, “There’s a strong emphasis on doubling down on manufacturing and ensuring that China’s competitive positioning in global supply chains remains sticky, particularly in the context of pressure by the US.”

But Marro sees a lack of emphasis on demand-side policies to help stimulate longer-lasting and sustainable consumption. “We haven’t seen enough attention applied to addressing weak household and business confidence, for example, which are attached to broader themes around weakness in the housing market, or the pressures stemming from involution,” he says, adding, “The supply-side emphasis will keep China externally focused, and, by extension, many China-based businesses as well.”

Energy systems and applied technology

China is making big leaps in terms of technology and especially energy.

China is by far the world’s largest producer of solar panels, wind turbines and lithium-ion batteries, and that lead is set to widen in 2026. Manufacturers such as LONGi, Trina Solar and JinkoSolar are expanding production in Inner Mongolia and Xinjiang, while turbine producers Goldwind and Envision are deploying offshore models exceeding 15 megawatts—the top tier of wind turbine currently available.

Dudarenok notes that the Chinese government’s energy strategy goes beyond renewables alone. “It’s expanding nuclear power capacity, now the world’s largest, to provide stable baseload power,” she says. More importantly, “it’s establishing dominance in battery energy storage systems, which are essential for balancing the intermittent nature of renewables.”

“The key metric to watch in 2026 isn’t gigawatts of new solar installed, but gigawatts of new energy storage deployed and the effectiveness of advanced grid-management policies,” she adds.

Another key area is high-tech manufacturing, in particular semiconductors, where China has made advances but is still suffering from restrictions from the United States.

Firms such as SMIC and Hua Hong are concentrating on mature-node chips used in vehicles and industrial equipment, while domestic suppliers Naura and AMEC are gaining market share in manufacturing tools. China also retains advantages as an early mover in EVs, battery manufacturing and electrolyser production for green hydrogen.

Another area of huge area of interest is AI. Technology deployment is shifting from experimentation toward commercial use. Baidu, Alibaba Cloud and Huawei Cloud are marketing industry-specific AI models for banking, healthcare and factory management, while firms such as Sany and Haier are embedding AI into predictive-maintenance systems.

“The binding constraint is no longer whether models can be trained, or hardware developed, but whether systems can be rolled out predictably,” says Guo Shan, a partner at Hutong Research.

Dudarenok highlights drones and “vertical AI” as two areas to watch. China’s new Civil Aviation Law, effective mid-2026, creates a legal framework for commercial drone use in logistics and emergency services, while industry-specific AI models are already being deployed across e-commerce, healthcare and logistics platforms.

Another area of interest for 2026 is economic ties with the Global South, which are also deepening, particularly given the increasing strains in trade relationships with more mature economies. Yuan-based trade continues to expand with partners such as Saudi Arabia, Brazil and Indonesia, supported by currency-swap agreements and offshore clearing centres. Hong Kong is positioning itself as a fundraising hub for firms from Southeast Asia and the Middle East, while the Shanghai Gold Exchange has expanded renminbi-priced contracts overseas.

Given the current geopolitical situation and the uncertainties surrounding Washington’s policy directions these ties have the potential to further deepen this year.

With all these areas on the up, China’s stock market has seen its best year in almost a decade, up almost 30% through 2025, boosted by the gains made in tech and energy. Some analysts are predicting a further strong rise in 2026 due to a perception that the system is determined to ensure that stock prices will continue to rise.

Consumption, property, finance and technology bottlenecks

However, not all is rosy. China is moving into 2026 facing a significant range of challenges, with the most prominent two being weak consumer demand and the ongoing property market slump.

Boosting domestic demand has a top issue for policymakers for several years and it remains a priority for 2026. But it is proving very difficult to encourage consumers to spend. Areas of growth are concentrated in services such as tourism, concerts and sports events rather than durable goods.

“There seems to be an emphasis among consumers on premiumization, but limited appetite for significant increases in costs,” Marro says, describing it as a symptom of “involution”—intense competition driving down prices and margins.

December 2025 saw retail sales grow 0.9% year-on-year, the slowest since the same month in 2022. The entire year was 3.7%, down from 6.5% the year before.

In 2025, official statistics on unemployment shift to recording youth unemployment—namely 18-24 year olds—with the figure for that year being 16.9%. That number is not expected to ease up this year.

Meanwhile, birthrates are ever-decreasing, with 2025 seeing just 5.6 births per thousand, the lowest ever recorded. The latter part of the year saw a range of new policies rolled out to counter that, including childbirth hospital expenses being fully covered. How effective these policies turn out to be on the rate will be something to watch over this coming year, but for now there is a clear pivot in the service sector towards this ageing population.

The birthrate issue has a silver-lining, and that is the opportunities in the healthcare and eldercare sectors, something China’s internet platforms are turning their focus towards. Dudarenok estimates the eldercare industry could exceed RMB 20 trillion by 2030, but she says, “this is a long-term adjustment rather than a short-term fix for weak confidence.”

“By 2026, consumption patterns will become increasingly fragmented. We’ll likely see continued divergence between cautious, value-driven spending from a large portion of the middle class and resilient, premium-focused luxury consumption,” says Dudarenok.

However, the silver economy is unlikely to be enough to turn the economy around. The biggest problem is the property market, which for many years has been the core of the domestic economy, typically making up around 25% the country’s GDP. In 2018, the sector provided jobs to around 49 million people.

Property sales have dropped 65% from the 2020 peak, and construction has slowed to its lowest since before 2000, with a 19.9% drop from 2024. And the market shows no sign of bottoming out. The property sector is therefore a drag on household wealth and local government finances and has a tangible knock-on effect on consumer confidence.

Beijing’s focus has arguably shifted from trying to revive the property market to managing its gradual decline. Policymakers are currently putting more emphasis on clearing unsold homes, converting commercial housing into affordable apartments, and clearing out weaker developers.

“Property and local government debt become the main risk-resolution targets as Beijing signals confidence that financial-sector risks are now contained,” says Guo, but warns that “the housing-market correction is still unfolding, and local government debt resolution requires banks to roll over more loans just as manufacturing returns are being squeezed by deflation.”

While 2025 saw China rack up a record trade surplus, with strong exports offsetting weaker domestic demand despite heightened tariff pressure from the US. Customs data show the country posted a record trade surplus of nearly $1.2 trillion, as exports grew about 5.5 % to roughly $3.8 trillion while imports remained flat at around $2.6 trillion. Shipments to the United States fell, but were made up for in Southeast Asia, Europe, Africa and other markets. However, while such strong exports may bring in money, having such a strong imbalance is presumably not sustainable and does not put China in good standing with its trading partners. There could be an increase in tensions over the issue through 2026.

Foreign direct investment (FDI) has been the driver of economic growth for the past several decades, but it has dropped in the past few years. It is likely to remain subdued in 2026 compared with previous years. Total FDI flows into China declined about 9.5% in 2025 to roughly $107 billion, extending a multi-year slide from the pre-pandemic era. Despite this, there are signs of continued interest in the Chinese market: over 61,000 new foreign-invested firms were established in the first 11 months of 2025, nearly 17% more than a year earlier.

One area where tariffs and export controls may hit China hardest is tech. Despite the splurge of innovation in the technology sector, China remains reliant on foreign suppliers for advanced logic chips dominated by the Dutch semiconductor producer ASML. At the time of writing, the US has approved the sale of Nvidia’s second-most powerful chips, the H200, to China. China’s access to these chips could have big implications.

Guo feels the more advanced Nvidia chips could be disruptive for domestic producers: “with Nvidia’s H200 chips entering the China market, domestic suppliers face renewed pressure as policy shelter narrows,” she says, adding that China’s chip sector “remains in a catch-up phase,” even as Beijing leans more heavily on state-led procurement to support local firms.

“The technological gulf [in semiconductors] between China and the West is still relatively wide,” Marro says, “but advances just in the last few years suggest that this gap may be narrower than the market had assumed.”

Tipping the balance

Taken together, this all points to a year of uneven progress rather than broad-based recovery. China enters 2026 with strong momentum in areas such as clean energy, industrial automation and technology development, but facing major problems led by the property sector, investor and consumer confidence, as well as the demographic steamroller and debt.

A return to the high-growth model of earlier decades increasingly seems impossible. Instead, Beijing appears to be settling into a strategy that tolerates slower growth in exchange for greater control over strategic sectors and long-term resilience. Energy systems, supply chains automation and high-tech will probably continue to receive policy support and state capital.

Hutong Research’s Guo says that taken together, these dynamics frame 2026 less as a year of policy redefinition than as a test of the system’s capacity to execute under constraint. “External pressure is no longer treated as an episodic shock, but as a standing condition of policymaking,” she says, “the result is a policy environment in which outcomes will hinge not on headline targets, but on sequencing, coordination, and tolerance for adjustment costs.”