China’s Economic Direction In 2026

China’s Economic Direction In 2026

Author : Lt Gen SL Narasimhan

China conducted its annual Central Economic Work Conference (CEWC) on December 10 and 11, 2025. As is normal practice, it was preceded by a Communist Party of China’s Politbureau meeting to set the agenda for the CEWC. CEWC sets the path the economy of China should take for the next year. In that process, it sets economic priorities. A look at the CEWC priorities for the two previous years and this year will lead to an understanding of the path the Chinese government is taking on its economy.

CEWC 2023

In December 2023, the CEWC gave nine priorities. They were: lead the construction of a modern industrial system with scientific and technological innovation; focus on expanding domestic demand; deepen reforms in key areas; expand high-level opening-up to the outside world; continuously and effectively prevent and resolve risks in key areas; persistently and diligently work on agriculture, rural areas, and farmers ('three rural issues'); promote the integrated development of urban and rural areas and regional coordination; seriously promote the construction of ecological civilization and green, low-carbon development; and effectively guarantee and improve people's livelihoods.

CEWC 2024

CEWC in 2024 retained the nine priorities but changed the order of the top three priorities. China has struggled with increasing the domestic consumption and therefore, prioritised it from second to first place. Technological innovation, which was top priority in 2023, was shifted to second place. Clearly China was to give more importance to innovation than GDP growth. In third place was deepening of reforms.

Politbureau Meeting 2025

The messaging from this year’s politbureau meeting that took place on December 08, 2025 has changed from last year's "stability through progress" toward a focus on "improving quality and effectiveness” of such progress. The politbureau meeting reviewed the economic performance in three parts. First, it concluded that in 2025, China effectively implemented proactive and effective macro policies and economic and social development goals are expected to be achieved. Second, in the last five years (14^th Five Year Plan Period), China effectively navigated challenges that resulted in enhancement of both hard and soft power¹.

Third, it gave out three directions and eight priorities for economic work in 2026. The directions are: Next year's macroeconomic strategy will emphasise both coordination and forward planning; strengthen alignment between fiscal and monetary actions; balancing aggregate and structural policies² and coordinating asset revitalisation with incremental stimulus. The difference from last year’s directions is that it is moving toward prioritising quality, effectiveness and sustainability of growth rather than the speed of expansion alone.

The eight key tasks for 2026 given by the politbureau are to persist in: Domestic demand as the mainstay to build a strong domestic market; innovation-driven development to strengthen new quality productive forces; tough reforms to enhance high-quality development; opening up to the outside world; coordinated development for urban-rural integration and regional linkage; guide “dual carbon” goals to promote comprehensive green transition; prioritise people’s livelihood for the masses; and hold the bottom line to actively and prudently resolve risks in key areas.

CEWC 2025

The CEWC confirmed politbureau meeting’s findings for the past year and the 14^th Five Year Plan period. It then iterated the actions to achieve the eight priorities given in the Politbureau meeting. Application of New Development Philosophy³ to lay importance on high quality development led the pack of measures. Next came development of New Quality Productive Forces (新质生产) which means ‘advanced productivity that is characterised by ‘high-tech, high efficiency and high quality”. The third is to further develop a unified national market⁴ (全国统一市场). This concept though not new (was started in 2012), is not complete and has been facing hurdles from the provinces.

Under defusing risks in key areas, proactive fiscal policy, maintaining necessary fiscal deficit, continued austerity measures and a moderately loose monetary policy to keep ample liquidity are mentioned. Last year after the CEWC, the expectation was that China’s fiscal deficit may increase from 3% to 4%. In 2025, China’s fiscal deficit was at 4%. RMB exchange rate in 2026 is likely to remain stable. On the real estate sector that has been in trouble in China, there has been a mention in this year’s CEWC that China should stabilise the real estate sector and advance construction of “quality homes” indicating thereby, there have been instances of questionable standard in the construction sector.

Domestic consumption, which has been a worry for the last three years, has shown moderate increase at 4.6% in the first three quarters of 2025. It was US$ 3089⁵ per capita for that period. However, in this year’s CEWC it was the first of the priorities. The change that has been brought this year is that in addition to domestic consumption there is an effort to unlock the service consumption by opening up the service sector in an orderly manner. Unemployment has been an issue for the past few years. This problem continues with 12.1 million students graduating this year and the unemployment rate hovering over 5%. Maintaining the birth rate has been another issue that China has been trying but has been unsuccessful so far.

Science and Technology Innovation has been given the importance that it deserves. Introduction of K Visa to attract talent alongside approximately 240 talent acquisition programmes at the central and provincial level running simultaneously is expected to give the impetus to this aspect. To assist in innovation driven development international technology innovation centres in Beijing (Beijing – Tianjin – Hebei Region), Shanghai (Yangtze River Delta) and Greater Bay Area (Guangdong – Hong Kong – Macao) will be established.

Efforts to address the involution⁶ in China’s economy has been going on for sometime. However, the mention in the CEWC about reforming State Owned Enterprises (SOEs) and promoting the private sector seems to be suspect. It is because in China, the SOEs are too big to fail and hence there has been a lot of support from the government. The Micro Small Medium Enterprises sector in China seems to have done better in 2025.

A few other issues have been highlighted: Developing Hainan Free Trade Port, facilitating integrated rural urban development and social issues like medical insurance payment, care and assistance for people in need, high quality One Belt One Road Cooperation all find a mention.

Three-year perspective

A comparison of priorities given in the CEWCs of the last three years is given below:

Many of the problems that China is facing in its economy have not gone away. However, if one analyses the last three years approaches by China’s government, the slow graduation from recovery in 2024 to stability in 2025 and foresight and coordination in 2026 can be seen. Therefore, following can be expected in China’s economy in 2026:

- GDP Growth – 4.5% -5%

- Further stabilising of the real estate sector and regulation for quality housing

- A stable RMB around RMB b7 to a USD

- Fiscal Deficit of 4% to 4.5%

- Continued emphasis on innovation

- Continued efforts to increase domestic consumption and reduce unemployment

*****

Lt Gen SL Narasimhan is a Non-Resident Distinguished Fellow. The views expressed are those of the author and do not reflect the views of the Deccan Centre for International Relations (DCIR).

------------------------------------------