Balanced growth, structural reforms in focus for 2026

Economists expect China's 2026 policy agenda to place greater weight on domestic demand and innovation-led growth, sharpening the focus on long-term expansion and rebalancing the country's growth model.

"China has shifted its economic policymaking from a short-term, risk-response mode to a longer-term strategy centered on structural transformation, with a renewed focus on boosting productivity and fostering new growth drivers through technology investment and industrial upgrading," said Ding Shuang, chief economist for Greater China and North Asia at Standard Chartered Bank.

The Central Economic Work Conference, held in Beijing last week, called for leveraging the combined effects of existing and new policies, strengthening countercyclical and cross-cyclical adjustments and enhancing the effectiveness of macroeconomic governance.

Ding said cross-cyclical adjustment is generally understood as taking a long-term view. With China's external environment now more stable than a year ago, he added, policymakers are refocusing on how to strengthen the country's long-term growth potential and deliver qualitative improvements in the economy.

Zhang Ning, senior China economist at UBS Investment Bank, said: "Overall, we think the Central Economic Work Conference set a policy tone that is more balanced and provides continued support in order to stabilize economic growth while facilitating more structural reforms."

China's top policymakers have identified tasks for next year's economic work, including adhering to a domestic demand-led approach to build a robust domestic market, and enhancing innovation-driven development to accelerate the cultivation of new growth drivers.

The country's supply-side strength — in both quality and capacity — is very strong, but demand is relatively weak and has not fully absorbed supply. "Going forward, China needs to address the supply-demand imbalance and boost domestic demand so that it better matches the country's productive capacity," said Ding.

He noted that although China's consumption has improved in 2025, the recovery is mainly driven by stimulus measures. It is still necessary to further enhance households' consumption capacity and willingness to spend. This calls for additional structural policy measures.

"Relying on consumer goods trade-in programs can only deliver short-term effects. In the long run, China needs to strengthen households' expectations of stable income growth, improve social security for low-income groups and ensure equal access to basic public services," he said.

It was noted at the meeting that China will continue to implement a more proactive fiscal policy and maintain necessary fiscal deficits, overall debt levels and expenditure scales, while standardizing tax incentives and fiscal subsidy policies.

Under a "more proactive" policy stance, Wen Bin, chief economist at China Minsheng Bank, expects the scale of new government debt issuance in 2026 to further increase to around 12.5 trillion yuan ($1.8 trillion). This would help sustain broad fiscal spending and ensure basic livelihoods, salaries and normal operations at the grassroots level.

Economists at China Minsheng Bank estimate that the deficit ratio will remain at around 4 percent in 2026, corresponding to a deficit of roughly 5.9 trillion yuan — an increase of about 200 billion yuan from the previous year.

Issuance of ultra-long special treasury bonds is projected to reach 1.8 trillion yuan, up 500 billion yuan year-on-year. Local governments are expected to issue 4.8 trillion yuan in special-purpose bonds, an increase of 400 billion yuan from the previous year, Wen said.

Moreover, fiscal expenditure will likely be optimized to address local fiscal difficulties and basic spending needs, support social welfare and the social safety net, while tax incentives and fiscal subsidies may be normalized, said Zhang of UBS.

The meeting also noted that China will continue implementing a moderately accommodative monetary policy and will flexibly and efficiently employ various tools such as reserve-requirement-ratio and interest-rate adjustments to maintain ample liquidity.

Wang Yunjin, chief financial researcher at the Guangkai Chief Industry Research Institute, said China's central bank will make its open-market operations — including the medium-term lending facility, reverse repos and government bond purchases and sales — more flexible, targeted and efficient. These measures will continue to keep market liquidity ample and meet a wide range of funding needs.

On interest-rate policy, Wang noted that although domestic rates have already fallen to historic lows, there is still room and a need for further reductions. Taking into account the pressure on lenders' net interest margins, the central bank may cut policy rates by 0.1 to 0.3 percentage point next year, he said.

UBS economists maintain their baseline forecast of China's central bank cutting the policy rate by 20 basis points and reducing the reserve requirement ratio by 25-50 basis points by the end of 2026.