In 2026, global economic growth momentum is expected to weaken, while the ongoing conflict in the Middle East heightens geopolitical risks. China will face significant external uncertainties. However, amid the push of a more proactive fiscal policy and the support of a moderately accommodative monetary policy, China's fixed-asset investment growth is expected to accelerate significantly. Consumption will rise steadily, the drag from the real estate sector on the economy will gradually weaken and domestic demand is expected to grow more robust with continued improvement.

China's GDP is expected to reach around 147 trillion yuan ($21.5 trillion) this year, with real GDP growth likely achieving the target range between 4.5 and 5 percent. Meanwhile, external imported inflation pressures are expected to increase. Coupled with the gradual recovery of domestic demand, price indices will rise moderately. Nominal GDP growth may also fall within the 4.5-5 percent range.

This year, China will continue to implement a more proactive fiscal policy, focusing on improving precision and effectiveness. The deficit-to-GDP ratio is set at around 4 percent for the year, with total government deficit expanding to 5.89 trillion yuan. This will provide stable funding for fiscal expenditures, offset potential shortfalls caused by weak land sales revenue and sluggish tax growth, significantly enhance the financial capacity of central and local governments, and increase fiscal support for government investment, basic livelihoods, consumption and foreign trade.

A total of 1.3 trillion yuan in ultra-long term special treasury bonds will be issued, including 800 billion yuan earmarked for key projects to implement major national strategies and enhance security capacity in key areas, 250 billion yuan for large-scale equipment upgrades and another 250 billion yuan for consumer goods trade-in programs.

China will issue a total of 300 billion yuan in special treasury bonds to enable large State-owned commercial banks to replenish their capital, and 4.4 trillion yuan of local government special-purpose bonds will be issued to support infrastructure investment and public welfare.

Based on these measures, total new government debt in 2026 may reach about 11.89 trillion yuan, with the broad deficit-to-GDP ratio at around 8.1 percent.

This year marks the start of the 15th Five-Year Plan (2026-30) period. The proactive fiscal policy measures will focus on stabilizing employment, enterprises, markets and expectations through four key areas.

First, domestic demand will be expanded by stimulating private investment and boosting household consumption, including interest subsidies for small and micro enterprise loans and guarantees for private investment, as well as optimizing personal consumption loan subsidies.

Second, policy support for technological innovation and industrial upgrading will be enhanced, including encouraging early-stage and high-tech investments, implementing structural tax and fee reductions, promoting intelligent manufacturing transformation and accelerating the commercialization of major technological achievements.

Third, local government debt risks will be precisely prevented and controlled. A third batch of 2 trillion yuan in bonds will be issued to swap local governments' off-balance sheet debts, along with 800 billion yuan in new special bonds to support local finances, while stricter regulation of fiscal subsidies will address haphazard and unbridled competition.

Fourth, public welfare and development support will be improved by allocating more funds to consumption and social welfare, refining fiscal relations between central and local governments, and enhancing local growth momentum through fiscal and tax reforms.

Total social financing is expected to grow rapidly, driven mainly by government and corporate bonds. Government debt issuances will continue to expand, with central and State-owned enterprises increasing bond issuances.

With ample liquidity and supportive policies, equity financing is expected to expand steadily, particularly in high-tech sectors such as semiconductors, artificial intelligence and biopharmaceuticals.

We expect new loans for the full year to exceed 17 trillion yuan, with outstanding loan growth at around 6.3 percent. Total social financing may reach about 38 trillion yuan, with growth rising to 8.6 percent, while the growth of the broad money supply, or M2, is expected to remain around 8.4 percent.

The 2026 Government Work Report emphasizes fully tapping and unleashing the potential of effective investment, making the recovery of investment growth and returns a key pillar for expanding domestic demand.

Manufacturing investment is expected to bottom out and recover, supported by policy, innovation and demand. Growth is projected at 3-5 percent, characterized by improved industrial resilience, development of emerging and future industries, the multiplier effect of "AI plus manufacturing" and reduced cutthroat competition.

Infrastructure investment growth may reach 4.5-5 percent, supported by major projects and urban renewal, with increased private sector participation expected.

Driven by manufacturing and infrastructure investment, fixed-asset investment — excluding rural households — is expected to grow by 2 percent, contributing 25 percent to GDP growth and boosting GDP by 1.25 percentage points.

Looking ahead, China's real estate market may enter a bottoming phase in 2026. Long-term factors such as population declines and slower urbanization will dampen demand, while high inventory and leverage levels will moderate construction activity. Policies will focus on removing restrictions, optimizing housing policies in major cities and stabilizing developers. Special bond issuances to support the acquisition of unsold housing and idle land are expected to total between 200 billion and 300 billion yuan.

Housing policies will remain accommodative, with potential further declines in mortgage rates. Purchase restrictions in major cities could be relaxed if necessary. Fiscal policies may introduce interest subsidies for homebuyers, while local governments will adopt tailored measures.

As a result, the decline in major real estate indicators is expected to narrow, reducing its drag on the economy.

Currently, there remains a need to accelerate the growth of consumption in China, and there is ample room for expansion. In 2025, consumption contributed 52 percent to economic growth, driving GDP growth by 2.6 percentage points. However, China's household consumption rate still lags behind that of developed countries by 10 to 30 percentage points, with the share of service consumption being particularly low. In 2026, consumption should play a more active role in stabilizing the economy.

Supportive policies include trade-in programs, a 100 billion yuan special fiscal-financial coordination fund to boost domestic demand and income growth initiatives. Per capita disposable income growth is expected to reach around 5 percent or higher. Additional measures such as childbirth subsidies and consumer loan interest subsidies will further stimulate spending.

Service consumption will benefit from increased holidays — 33 days in 2026 — boosting tourism, dining and accommodation. Additional holidays may generate approximately 250-300 billion yuan in household consumption spending.

China will expand high-quality consumption supply and develop new consumption scenarios, including digital services, cultural tourism, eldercare, green consumption, and international services such as duty-free shopping and cross-border medical care.

Local authorities will address specific issues such as insufficient convenience, lack of appeal and overly restrictive business regulations in sectors such as automobiles, housing, inbound tourism, cultural services and healthcare.

We project that China's total retail sales of consumer goods will grow by around 4 percent year-on-year in 2026. Consumption is expected to contribute about 55 percent to annual economic growth, up 3 percentage points from 2025, driving GDP growth by 2.75 percentage points.

Lian Ping is director and chief economist of the Guangkai Chief Industry Research Institute. Liu Tao serves as a senior researcher, and Wang Yunjin is chief financial researcher at the institute. The article was translated based on a piece published in Financial News, a Beijing-based business and finance newspaper.

The views do not necessarily reflect those of China Daily.