China's Economic and Industrial Prospects for 2026: A Measured Assessment

By IndraStra Business News Desk

Cover Image Attribute: The skyline of Chongqing, Image by 琛茜 蒋 from Pixabay

As 2025 drew to a close, with global markets recalibrating to changing trade patterns and domestic policies coming into focus, Deloitte China released Issue 101 of its Monthly Report on December 26. This document offers a detailed examination of macroeconomic trends and sector-specific developments, drawing on data through November and incorporating outcomes from key gatherings such as the Central Economic Work Conference (CEWC, 中央经济工作会议) held December 10 to 11.  In light of ongoing growth imbalances, the report projects a GDP growth rate of 4.5 percent for 2026—a significant slowdown from the roughly 5 percent attained in 2025—which may have an impact on policy and investment choices. This projection stems from a year where China's economy exceeded initial expectations without relying on extensive fiscal or monetary interventions, yet faced subdued domestic demand due to weaknesses in the property sector and a soft labor market.
The year 2025 began with uncertainties, but events unfolded to stabilize certain aspects. The meeting between Xi Jinping and Donald Trump on October 30 in Busan marked a de-escalation in trade tensions, contributing to strong performances in risky assets. Equities surged, with Hong Kong leading in initial public offerings and the A-share market reaching a ten-year high. Long-term interest rates increased, indicating a retreat from earlier concerns about economic stagnation. Exports grew by 5 to 6 percent despite tariffs, including a 100 percent duty imposed by the United States on Chinese electric vehicles and expected rises from Europe. However, the property sector's downturn continued, dragging on overall domestic consumption.
Looking ahead to 2026, the report identifies several factors contributing to the moderated growth forecast. The property downturn shows no signs of quick reversal, and an "anti-involution" campaign aims to consolidate overcapacity in industries such as steel, cement, and solar panels. Net exports are expected to contribute less to growth as global protectionism intensifies. To address these issues, rebalancing efforts focus on increasing the consumption-to-GDP ratio, a priority endorsed at the October Fourth Plenary Session. Proposals include expanding trade-in programs to encompass services like travel and reducing mortgage rates in light of rising foreclosure risks. These sectoral shifts signal ongoing modernization and adaptation, fostering confidence in China's capacity for high-quality development and innovation.
The CEWC emphasized prioritizing household income growth over temporary price-lowering subsidies, aiming for more sustainable effects. Income enhancements could come through expansion in the service sector, especially as manufacturing faces involution and declining labor intensity. The separation of Hainan customs on December 18 supports ambitions to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and establish the island as a hub similar to Hong Kong. Notably, the report dismisses expectations of a broad property bailout, instead highlighting the 15th Five-Year Plan's emphasis on upgrading value chains and technological innovation rather than reviving the real estate sector, aligning with long-term strategic priorities.
Externally, the US-China truce may persist, but export challenges mount through tariffs and barriers. The United States-Mexico-Canada Agreement renegotiation could lead to higher duties, with Mexico imposing 50 percent on certain Chinese goods. Similar measures appear in India, Turkey, Brazil, and Thailand across various sectors. China's trade surplus reached $1 trillion by November 2025, heightening global scrutiny. Options to counter protectionism remain limited, with offsets sought through bolstering domestic demand, particularly consumption. The forecast of 4.5 percent GDP growth assumes expansionary fiscal policies and a firmer renminbi as the US dollar weakens, emphasizing the importance of demand expansion and supply-side reforms for sustainable growth.
Shifting to financial services, the 15th Five-Year Plan accelerates the build toward a "strong financial power," evolving from the 14th Plan's foundations. Objectives include maintaining a prudent monetary policy, strengthening the macroprudential framework, and fostering a coordinated investment-financing capital market. An optimized financial institution system aligns with high-quality development goals, transitioning the sector from mere scale to genuine strength.
A key shift involves downplaying quantitative indicators in favor of compatibility between economic and financial metrics. The People’s Bank of China (PBC, 中国人民银行), in its third-quarter 2025 report, discusses a scientific approach to assessing total financial indicators. During the 14th Plan period, total social financing and M2 growth ranged from 9 to 10 percent, exceeding nominal GDP to support the real economy. By this point, RMB loans stand at 271 trillion, and total social financing at 440 trillion. Growth rates have declined with the expanding base, consistent with the transition to high-quality development.
Pan Gongsheng, governor of the PBC, emphasizes downplaying quantitative targets. As loan growth in real estate and infrastructure slows, the focus turns to price regulation through interest-rate cuts and marketized rates to guide resource allocation and stimulate consumption and investment. Expectations point to continued rate reductions, with social financing growth below 8.5 percent, M2 at 7.5 to 8 percent, and loan growth under 6.5 percent.
Coordinated development of investment and financing involves reconstructing capital flows. Wu Qing, chairman of the China Securities Regulatory Commission (CSRC, 中国证券监督管理委员会), proposes reforms to develop direct financing, enhance the investment value of listed companies, attract long-term capital, open markets further, strengthen the rule of law, and protect investors. The goal centers on efficient, coordinated investment-financing mechanisms to restructure capital flows. China's financial structure has long been dominated by indirect financing, but credit, equity, and bonds increasingly substitute for one another.
From January to October 2025, RMB loans accounted for 47 percent of incremental social financing, down 10.9 percentage points from 2024, while direct financing rose to 45.8 percent, up 8.3 percentage points. The stock market experienced high fluctuations, deposit rates declined, and real estate's appeal diminished, prompting households to shift deposits to wealth management products, which exceeded 32 trillion RMB by the third quarter of 2025, up 4.8 percent quarter-on-quarter.
The high-quality financial institution system under the 15th Plan optimizes operations, focusing on core businesses, governance, and differentiated development. Emphasis falls on five key areas for efficient resource allocation. Banks' interest margins stabilized temporarily at 1.42 percent in the third quarter of 2025, with net profit growth turning from negative to zero. Non-performing loans rose to a balance of 3.5 trillion RMB, with a ratio of 1.52 percent, and provision coverage declined. Challenges persist in profit compression and asset risks.
Credit allocation shifts toward technology finance, green finance, inclusive finance, elderly care finance, and digital economy finance, with loan growth rates of 11.8 percent, 22.9 percent, 11.2 percent, 58.2 percent, and 12.9 percent year-on-year by September 2025, all above the overall average. The 15th Plan elevates the share supporting new quality productive forces.
In the first half of 2025, rural financial institutions decreased by 222 compared to the end of 2024, accelerating reforms. Participants now include major state-owned banks like Industrial and Commercial Bank of China, Agricultural Bank of China, and Bank of Communications, which are merging village and town banks into branches. These mergers enhance scale, operational efficiency, risk management, and cost reduction, stabilizing profitability.
Securities firms stand to benefit from reforms as the construction of first-class investment banks enters a critical stage. In the first quarter of 2025, securities assets totaled 15.3 trillion RMB, less than 3 percent of the financial industry. Building a strong financial power requires a robust market and institutions. Reforms by the CSRC drive trading activity, making high-quality development in securities essential, with consolidation accelerating. In November 2025, China International Capital Corporation (CICC, 中国国际金融股份有限公司)  merged with Dongxing Securities and Cinda Securities, resulting in assets exceeding 1 trillion RMB. Reforms, shifts in asset allocation, focus on technology and new forces, and global expansion position leading firms for cross-border growth and a second growth curve. Mid-sized firms leverage mergers and acquisitions or regional strengths, with revenues maintaining steady rapid growth.
Pension finance accelerates amid expansions in pension and health insurance. At the October 2025 Financial Street Forum, Li Yunze, director of the National Financial Regulatory Administration (NFRA,国家金融监督管理总局) discussed meeting demands in education, sports, culture, and healthcare through pension and health products, aligning with related policies.
Health insurance enters a new stage, prioritizing four types: commercial medical insurance, long-term care insurance, disability income insurance, and disease insurance. The "insurance plus health services" model dominates, shifting to comprehensive solutions.
Elderly care finance scales up through pilot expansions, with funds invested in long-term assets exceeding five or ten years to support the silver economy.
In the energy sector, the transition enters a new phase of systemic restructuring and integration. China boasts the world's largest clean-energy system, with renewable capacity at 2,159 gigawatts in the first half of 2025, accounting for 59.2 percent of domestic power and about 45 percent globally. Clean energy forms the backbone, but intermittency, grid resilience, absorption challenges, and industrial alignment constrain progress.
For 2026 and the 15th Plan, priorities move beyond mere expansion to system coordination, optimization, and industry integration. This involves redefining fossil energy's role, upgrading new-energy systems, and reshaping the sector through new technologies and applications.
Fossil energy repositions as a stabilizer amid geopolitical uncertainties and slowing globalization. Supply security becomes core, with increased investments in upstream oil and gas, pipelines, and storage. The Belt and Road Initiative expands resource access.
Value in fossil energy shifts toward feedstocks and materials for semiconductors, new energies, and equipment. Advanced chemicals emerge as a growth area, with the market at 1.18 trillion RMB in 2024 projected to reach 1.6 trillion by 2027.
Clean energy shifts from expansion to system integration. By September 2025, wind and solar capacity totaled 1,708 gigawatts, on track for Nationally Determined Contributions (NDCs, 国家自主贡献) targets of 3,600 gigawatts by 2035. Future emphasis falls on security and integration over sheer capacity. Grid resilience prioritizes storage deployment, nuclear as baseload, and enhanced transmission.
Renewables integrate source-grid-load-storage, with operations driving value. Competition centers on efficiency, storage and hydrogen applications, and differentiation through efficiency, integration, carbon management, and services.
Energy-industry integration is tested in zero-carbon industrial parks. Decarbonization is inevitable because more than 15,000 parks use 40% of the energy. Plans call for the construction of 100 national zero-carbon parks, which are backed by laws in more than 30 provinces. Focus areas encompass coordinated supply and demand, renewable deployment, and using energy and carbon signals to steer industries toward renewable-rich regions.
China hosts 40 percent of global new storage capacity, providing a technical base for high green power proportions. Parks offer end-to-end solutions, including planning, deployment, storage, charging, and carbon management. Digital control, storage monetization, carbon trading, and green finance transform emissions into assets. These parks also platform for certification and exporting models.
Computing power drives new demand and energy-digital models. Artificial intelligence applies across the energy chain in forecasting, maintenance, and research and development. Data centers consumed 150 billion kilowatt-hours in 2023, or 1.6 percent of electricity, projected to increase two to five times by 2030, outpacing grid development and straining supply.
Responses include source-grid-load-storage-compute integration. Distributed solar, storage, and small modular reactors ensure supply and security, with revenue from peer-to-peer trading and demand response. Premiums arise from zero-carbon computing, monetizing green attributes.
The 15th Plan promotes integration across production, dispatch, consumption, assets, data, systems, and industries. Value derives from technical depth and ecosystem capabilities.
In technology, media, and telecommunications, 2025 saw accelerated advancement and a shift in value realization. Artificial intelligence moved from disruption to deployment, with generative AI expanding its user base and embodied intelligence under exploration. Priorities included commercialization and ecosystem integration. For 2026, deepening occurs as China leads research and development in foundational and strategic industries, propelling AI, semiconductors, and satellite internet toward adoption and a global role.
Nine trends define the landscape. First, research and development investment tilts toward foundational domains and strategic emerging industries. In 2024, strategic emerging industries received 2.7 trillion RMB, up 21.8 percent year-on-year. The 14th Plan targeted basic research exceeding 8 percent of research and development by 2025, rising above 10 percent in the 15th, approaching levels in the United States at 16.2 percent and Japan at 12.5 percent. US-China competition accelerates progress in semiconductors, AI, quantum, and satellites.
Second, generative AI sees substantial user base growth. By June 2025, users numbered 515 million, a 266 million increase from December 2024, doubling and reaching 36.5 percent penetration. Integration spans agriculture, manufacturing, and research.
Third, AI infrastructure development accelerates. Intelligent computing reached 1,037.3 exaflops by end-2025, up over 40 percent year-on-year, leading globally. Shifts to systemic approaches include networks, centers, chips, and platforms for training and inference, fostering AI-native systems and intelligence transformation.
Fourth, data governance and cybersecurity feature rising standards, intelligence, and industrial integration. Trends involve upgraded standards with risk-driven and tiered approaches; intelligent tools like secure computation and anonymization; deep integration for data circulation and collaboration; and globalization through international alignment and independent systems.
Fifth, the semiconductor industry enters a "dual-track" development model. Traditional tracks ensure stability in automotive, control, and infrastructure, while AI chips target data centers, training, and terminals. The AI chip market is expected to grow seven to nine times from 35 to 40 billion dollars in 2025 by 2030, with localization rising from 30 to 40 percent to 60 to 70 percent. Policies, capital, and parks advance both mature and emerging processes.
Sixth, embodied intelligence emerges as the next wave of AI. Investments totaled 23 billion RMB in the first five months of 2025, with over 300 enterprises. The market stands at 1 trillion RMB in 2025, projected to 1.55 trillion by 2030 at a 10 percent compound annual growth rate. Commercialization matures in automotive and logistics, emerges in services, care, and health. Challenges include complexity, reliability, cost, acceptance, and safety. Grounding in assessments and ethics builds a trusted economy, upgrading manufacturing and expanding services as a growth engine.
Seventh, satellite internet reaches an inflection point for scaled deployment and commercial takeoff. The global market exceeds 30 billion US dollars in 2025, with China's at over 44.7 billion RMB. In 2026, scaling and integration advance, with costs declining and "satellite plus 5G/6G" integration improving remote connectivity. Core applications span emergency, transport, energy, and shipping. By 2030, the market could reach trillion-yuan scale, opening a commercialization window.
Eighth, quantum technology accelerates from basic research toward industrialization. In 2025, the market hit 89.2 billion RMB, 37.2 percent of global and ranking top two. Advantages lie in communication and key distribution, with city networks and satellite trials. For 2026, integration with 6G advances, forming "quantum-secure plus satellite plus terrestrial" architectures. Use cases emerge in finance, energy, data, and government. Challenges encompass cost, standardization, reliability, and storage, transitioning to pilots.
Ninth, 6G enters an intensive experimental phase. Trials involve satellites, architectures, and space-air-ground integration, with rapid progress in orchestration and multiple-input multiple-output. The 2026 to 2028 period offers a consensus window, with deployment by 2030. Operators, vendors, and players position accordingly. 6G underpins intelligence in driving, governance, and defense, making 2026 validation critical.
In government and public services, enhancing policy effectiveness involves integrating existing and new measures. The December Central Committee of the Communist Party of China called for proactive and effective macro policies with forward-looking design, targeting, and coordination to expand demand, improve supply, and optimize resources. The shift moves from "progress ensuring stability" to "progress stability, quality effectiveness."
Policy coordination emphasizes fiscal-monetary interaction. Proactive fiscal policy stabilizes growth and drives social investment, while accommodative monetary policy aids debt restructuring and cost reduction. Alignment balances short-term actions with long-term reforms, combining counter-cyclical and structural approaches for transition.
Government investment plays a stronger catalytic role in driving overall social investment. In 2025, proactive fiscal measures included record deficits, expenditures, investments, and transfers. However, transmission weakened due to declining local matching funds, soft private participation, and project delays.
Infrastructure investment growth declined from 11.5 percent cumulative in March to 1.5 percent in October 2025, though public utilities remained robust. In September 2025, 500 billion RMB in new instruments targeted government projects and the digital economy.
This comprehensive view from the report illustrates a year of adaptation in 2025 leading into a 2026 focused on rebalancing, integration, and quality-driven growth across sectors. While achievements in clean energy capacity and AI user expansion provide foundations, persistent challenges in property, exports, and policy transmission demand careful management. The outlook remains cautious, with potential for stability through targeted reforms and international engagement.

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