China's ruling elites will soon gather to hammer out the priorities for the world's second-largest economy next year.
Markets will look to the year-end agenda-setting Central Economic Work Conference for clues into Beijing's plans for 2026. High on the to-do list will be ensuring the economy is ready for another round of tussles with the U.S., as signaled by the emphasis Chinese leaders have placed on reducing reliance on foreign technology.
But attention will also be paid to domestic issues. The Politburo, China's top decision-making body, this week reiterated a pledge to boost demand, long weighed by a property slump and job market weakness.
Economic signals are mixed: Growth has been better than expected and exports have defied U.S. tariffs, but deflation is entrenched while business and consumer optimism remain muted.
Here's what to watch:
GDP TARGET: Officials are expected to discuss 2026's growth target, which will be announced in March. Many economists anticipate that Beijing will maintain its goal of around-5% expansion to boost confidence.
Economists at Nomura see a possibility that it might tolerate slightly slower growth of 4.5%-5%, citing challenges in the property sector and campaigns to curb local government debt and excess capacity.
Beijing is also increasingly prioritizing inclusivity and security over the speed of growth, as suggested by its latest economic five-year plan, Nomura said.
FISCAL: Beijing has suggested that it will maintain proactive fiscal policy and a moderately loose monetary stance. Analysts don't anticipate any dramatic stimulus.
"We expect China's macro policies to remain supportive to cushion growth, but policy makers may avoid 'ultra-loose' measures to safeguard financial stability and balance short-term economic relief with the long-term structural agenda," Standard Chartered economists said.
Morgan Stanley economists expect Beijing to set fiscal targets broadly in line with 2025's--including headline deficit at around 4% of GDP, and a slightly larger quota for special local government bonds. They think authorities will save space for additional quasi-fiscal measures in the second half of 2026 if growth misses expectations.
With fiscal policy in the driver's seat, Citi economists say the PBOC might continue making small cuts to policy rates and reserve requirement ratios.
HOUSEHOLDS: With leaders vowing to give consumption a bigger role in fueling growth, economists expect household support to sit high on the agenda. Still, continued emphasis on technological self-sufficiency and advanced manufacturing has raised doubt over how much progress will be made.
Despite efforts over the past year to lift consumption, momentum weakened further in 2025, driven by a lackluster labor market and slowing household income growth, according to Gavekal Dragonomics.
Focus is on whether Beijing will continue to sponsor nationwide consumer trade-in programs and if it will consider an unprecedented numerical goal for how big a share household consumption will have in the economy.
Trade-in subsidies could remain at 300 billion yuan, equivalent to $42.2 billion, next year and authorities may further expand the scope of eligible goods and cover more of rural areas, said Citi economists.
Economists at Morgan Stanley expect to see more support for services consumption. "There could be growing recognition that the service sector would be key to generating employment and containing wage-price pressures."
INVESTMENT & PROPERTY: Chinese investment has been spiralling lower in recent months, dragged by the housing slump as well as Beijing's bid to limit excess capacity in key sectors.
Investors will watch to see if policymakers can strike a balance between supporting growth and managing industrial overcapacity.
Economists and government advisors have called for more aid for the real-estate sector, but authorities have yet to act.
Top-tier cities could continue to loosen property curbs, and local governments could offer tax incentives or cash subsidies to encourage home purchases, said Citi economists.
However, markets may need to keep expectations low, as Beijing has yet to find more effective solutions to address the root causes of the property collapse, Nomura said.
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(END) Dow Jones Newswires
12-08-25 2024ET
