Economy seen on steady track

Domestic and international financial institutions have voiced confidence in China's economy, believing it will see a steady recovery over the coming years as policy support and industrial upgrading drive resilient growth.

Their remarks followed the country's release of recommendations for the 15th Five-Year Plan (2026-30) last month, which outlined its development blueprint over the next five years.

China's economy is expected to continue its recovery next year amid fluctuations, with policy support for the economy remaining robust, said Ming Ming, chief economist at CITIC Securities.

"The government is expected to adopt a more proactive fiscal policy in 2026. The deficit-to-GDP ratio is likely to stay around 4 percent, while the quota for special-purpose local government bonds — a key funding source for infrastructure development — is projected to expand, with a tilt toward underpinning project construction," he said.

On the monetary policy front, there remains room for both reserve requirement ratio cuts and interest rate reductions, he added, noting that structural monetary tools are expected to continue playing a pivotal role while the People's Bank of China — the country's central bank — is likely to keep engaging in government bond transactions.

Ming expects China's economy to achieve its around 5 percent GDP growth target this year and expand by around 4.9 percent in 2026.

Liang Zhonghua, chief macro analyst at Guotai Haitong Securities, said China's economy holds substantial growth potential over the medium to long term.

Liang said relatively soft domestic demand remains a key challenge to be tackled by policy measures next year, and spurring growth hinges crucially on stabilizing prices.

Lu Ting, chief China economist at Nomura, believes China will focus on driving "resilient, steady and inclusive" economic growth over the next five years.

The Chinese government is expected to continue advancing technological self-reliance through robust investment and industrial policies, with a particular focus on the semiconductor and artificial intelligence sectors, Lu said.

The economist highlighted that sectors like semiconductors and AI are strategically critical in promoting the country's high-quality development.

"State resources should be leveraged and market forces, including the stock market, should be mobilized to propel their growth. This will help mitigate the risk of supply chain disruptions from external dependencies," he said.

While forecasting global AI investments will continue to expand, Rob Subbaraman, head of global macro research at Nomura, cautioned against the sustainability of the trend.

"Most AI investments so far have been self-financed by companies using their profits, with little reliance on borrowing. But as AI investment scales keep growing, it remains uncertain whether this self-financing model can persist," Subbaraman said.

"Companies may need to turn to debt markets for funding — major firms like Meta and Alphabet have already begun limiting borrowing this year. This could crowd out credit markets and lead to higher credit spreads."

sally@chinadailyhk.com