Expert: Next year's fiscal moves to resemble 2025

China may stick to its "around 5 percent" annual growth target for 2026, while fiscal stimulus measures should mirror 2025 in scale and composition, with rebalancing proceeding gradually, said a renowned economist.

As the market is eagerly awaiting clues for next year's economic priorities from the upcoming annual Central Economic Work Conference, Robin Xing, chief China economist at Morgan Stanley, said policymakers are likely to aim for a growth target of "around 5 percent "next year to revive confidence among investors and consumers.

Looking ahead, Xing warned of pressures from still-weak domestic demand amid the ongoing correction in the property market. "As real estate is still in the process of adjustment, housing prices and new construction will most likely remain in decline next year. And consumption growth may see a slight slowdown next year."

Exports, by contrast, are expected to be resilient thanks to solid global demand — particularly from the United States, he added.

"Exports and external demand are relatively strong. US demand will remain fairly steady next year, particularly with investments in the booming artificial intelligence sector. That will not be bad news for the world and for China, and will support part of China's exports."

Xing noted that China's strong industrial competitiveness and its trade negotiations with the US have stabilized export performance. "Export growth may be slightly weaker than this year, but there won't be a steep decline."

Given those conditions, supply-centric initiatives — particularly infrastructure investment — are expected to remain a key policy tool to support growth in 2026, the first year of China's 15th Five-Year Plan (2026-30) period. "If the government sets an annual growth target of around 5 percent for next year, infrastructure investment is still the most feasible lever," he said.

Adopted at the fourth plenary session of the 20th Central Committee of the Communist Party of China, the recommendations for formulating the 15th Five-Year Plan said that China would work hard to see that by the year 2035 its per capita GDP will be on par with that of a mid-level developed country.

Sharing similar views with Xing, a Goldman Sachs report said this phrasing implies approximately 4.5 percent annual real GDP growth for the period from 2026 to 2030 and suggests a likely 2026 growth target of "around 5 percent".

Xing said next year's two sessions will likely continue to emphasize infrastructure and front-load some local and central government bonds.

"New investment directions are worth watching, such as underground pipelines, where there is huge room for upgrading. Green transition spending will also continue, so green power, energy storage and smart grids still have great potential," he added. "AI is also another priority, which means computing power centers and related infrastructure will be a main focus for investment next year."

Despite challenges ahead, Xing highlighted improving confidence driven by three major shifts over the past year. "People feel reassured — policymakers care about the economy. China's industrial strength and technological innovation have also bolstered sentiment. Confidence in corporate competitiveness and technological innovation has risen. Entrepreneurs never lie flat — they have kept improving."

Meanwhile, he emphasized progress in AI, saying China is among tops globally with a complete ecosystem in AI, from upstream computing power to midstream infrastructure and downstream applications, which is drawing more capital. "Capital is becoming more active. Overseas investors are showing stronger interest in China, and domestic institutions are also increasing their participation."

Xing said he believed more forceful fiscal support could follow if deflationary risks persist into 2026. "Fiscal policy may start relatively moderately, similar to 2025 as a ratio of GDP, but if the economy remains stuck amid deflationary pressures in the first half, there could be an expansion in the third quarter."

When it comes to intensified fiscal support, Xing suggested expanding the scope of trade-in deals for consumer goods to cover more types of services consumption. "Services like entertainment and tourism can be consumed repeatedly and support employment."

Looking ahead, Xing said central government support for housing is possible, but implementation challenges remain. On the monetary policy front, Xing said his team expects 10 to 20 basis point policy rate cuts and 25 to 50 basis point reserve requirement ratio reductions next year to accommodate fiscal policy.

Contact the writers at ouyangshijia@chinadaily.com.cn