China 2026 Outlook Exploring New Growth Engines

Economics Research 5 January 2026 | 7:01AM HKT

Hui Shan | Goldman Sachs (Asia) L.L.C.

Lisheng Wang | Goldman Sachs (Asia) L.L.C. n The Chinese economy has experienced significant changes in recent years. By Xinquan Chen | late 2025, China’s export market share in the United States and, domestically, its Goldman Sachs (Asia) L.L.C. new property starts, had returned to levels seen in the early 2000s, erasing the gains made since joining the WTO in 2001 and China’s housing reform in 1998. Yuting Yang | The main challenge for the Chinese economy remains finding new growth Goldman Sachs (Asia) L.L.C.

engines. Although Chinese exporters have successfully diversified into non-US Chelsea Song | markets, supporting our positive outlook for Chinese exports, building a Goldman Sachs (Asia) L.L.C. consumption- and services-driven economy will take years, if not decades. Andrew Tilton n We expect export volume (real terms) to grow by 5% in 2026, following | Goldman Sachs (Asia) L.L.C. approximately 8% real growth in 2025. Strong goods exports, muted imports due to ongoing import substitution, and policies to promote services exports support our forecast that China’s current account surplus will widen from 3.6% of GDP in 2025 to 4.2% in 2026, well above consensus. n The property market is likely to continue declining in 2026, but its drag on GDP should lessen, as the sector’s share of the economy has decreased significantly. Labor market weakness is also expected to persist, driven by both structural factors such as AI- and tech-related job displacement, and cyclical challenges, like the prolonged property downturn. n We anticipate slower household consumption growth in 2026, but expect government consumption to accelerate and offset private consumption weakness. Recent policy announcements suggest the government’s consumer goods trade-in program will continue in 2026, helping to prevent a sharp drop in retail sales. However, we believe services consumption growth will outpace goods consumption, supported by government initiatives and underlying structural upside. n Investment growth slowed in the second half of 2025 due to local government financing constraints and the “anti-involution” campaign targeting overcapacity in certain industries. With policymakers pledging to “stabilize investment” in 2026, we expect gross fixed capital formation growth to rebound from 1.5% in

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Goldman Sachs China 2026 Outlook

2025 to 3.5% in 2026. Overall, we project China’s real GDP will grow by 4.8% in 2026, above the consensus forecast of 4.5%. n China’s reflation process will likely remain gradual, but year-over-year inflation should rise due to the government’s “anti-involution” efforts and a low base. We expect CPI inflation to rise from 0% in 2025 to 0.6% in 2026 and PPI inflation to increase from -2.6% to -0.7%. Our PPI inflation forecast is modestly higher than the consensus estimate of -1.0%. n Our above-consensus growth and inflation forecasts assume increased policy easing in 2026, including two 10bp rate cuts and a 1.2pp widening of our estimated augmented fiscal deficit, both slightly more dovish than market consensus. However, policymakers have shown little urgency in easing policy despite recent weak data. Consequently, risks to our 2026 outlook are skewed toward insufficient policy easing and weaker-than-expected domestic demand. If it were to materialize, weaker domestic demand would imply lower domestic prices and even stronger exports than we project.