Our economic outlook for China

After reaching 5% in 2025, GDP growth is likely to moderate to around 4.5% in 2026 as the contribution from net exports diminishes amid tariff effects and continued trade policy uncertainty. We expect growth in consumption and public investment to ease modestly. While investment in high‑tech and strategic sectors continues to grow, concerns about excess capacity suggest these gains won’t fully offset a structural decline in property investment. (On March 5, China set its 2026 growth target to a range of 4.5%–5%, its lowest target since 1991.)

Beyond cyclical factors, demographic headwinds are intensifying. China’s population has decreased for four straight years, a decline that policy support has so far failed to stem. The newborn population fell to 7.92 million in 2025, the lowest number since records began in 1949.

Policymakers are increasingly concerned about China’s sharp slowdown in domestic demand. In response, the government has frontloaded bond issuance, while monetary authorities have introduced targeted rate cuts, expanded liquidity quotas for priority sectors, and lowered downpayment requirements for commercial mortgages. Even so, additional support will likely be required to prevent a further deceleration in growth in 2026. We expect the policy response to remain incremental and targeted. Further property‑related measures—including mortgage subsidies for new loans—are possible, though a broad, comprehensive rescue package still appears unlikely in the near term.

The potential inflationary effects of higher oil prices because of conflict in the Middle East would be felt less in China than in many other countries. The government can limit pass-through to consumer prices, and inflation is already minimal.

The People’s Bank of China has kept policy rates and liquidity conditions broadly unchanged, reiterating that any further easing will be selective. Credit growth is slowing, reflecting payback from earlier fiscal frontloading and softer household demand. By year-end, we expect only a modest policy rate cut of 20 basis points—primarily to facilitate fiscal expansion—which would bring the policy rate to 1.2%. (A basis point is one-hundredth of a percentage point.)