Our economic outlook for China
June 16, 2026
Supportive conditions for growth amid wider imbalances
“China is riding on the structural upcycles of the AI boom and green transition, while its competitive supply chain is keeping exports resilient.”
Grant Feng,
Vanguard Senior Economist
China’s economy is finding support from relatively new and more traditional sources, even as imbalances have widened. The AI boom and green transition provide structural support, while resilient exports—up around 15% in the first four months of 2026—and more stable U.S. trade relations after the recent leadership summit in Beijing should continue to support the external outlook.
Even so, growth imbalances have widened, with supply-side momentum and investment remaining firm while consumption has softened and real estate remains a drag. A meaningful domestic-demand turnaround remains elusive, held back by labor market softness, limited policy rebalancing toward consumption, and the ongoing adjustment in the real estate sector.
While higher energy prices, solid growth, and tentative improvement in the real estate market are driving a mild rebound in prices, the recent reflation impulse lacks a strong driver as the two-speed economy becomes more entrenched. Energy price pressures and persistent supply-chain strains are pushing up producer and input prices at the margins, aiding price recovery. However, pass-through to consumer inflation remains limited given subdued household demand.
Solid near-term growth reduces the urgency for near‑term stimulus. However, warning signs from the domestic economy are likely to keep policymakers on alert and may accelerate the rollout of policy support. The People’s Bank of China will likely remain on hold this year, with a preference for structural tools for targeted sectors rather than a broad-based policy rate cut.
China economic forecasts
Notes: GDP growth is defined as the annual change in real (inflation-adjusted) GDP in the forecast year compared with the previous year. Unemployment rate is as of December for each year. Core inflation is the year-over-year change in the Consumer Price Index, excluding volatile food and energy prices, as of December for each year. Monetary policy is the People’s Bank of China’s seven-day reverse repo rate at year-end.
Source: Vanguard.
Supply-chain competitiveness underscores China’s export resilience
Notes: China’s trade competitiveness is reflected by its unique position related to the complexity of its exports and imports. Countries that export a broad mix of sophisticated goods tend to score higher, suggesting deeper productive knowledge.
Sources: Vanguard calculations, based on Harvard Growth Lab data as of 2024.
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