Consumption-led growth eyed to drive expansion

China is set to press ahead with consumption-led and technology-driven expansion in 2026 as the economy undergoes a structural shift toward higher-quality growth, according to economists at major Chinese and international financial institutions.

Xiong Yi, Deutsche Bank's chief economist for China, said,"Our main takeaway from the Fourth Plenum is that Chinese leaders have become more confident in China's technological capabilities and economic resilience, despite observing a more challenging external environment for the coming years."

The country's three new policy priorities stand out for Deutsche Bank economists: accelerating technological application and commercialization by industries, strengthening economic ties with the outside world, and improving people's well-being through increased public spending.

"We think these policies will benefit innovative private firms in emerging industries and boost domestic consumption, especially in the services sector," said Xiong.

Chinese leaders have set key tasks for economic work in 2026, including pursuing innovation-driven development and accelerating the cultivation and expansion of new growth drivers.

At the recently held Central Economic Work Conference, it was noted that the country must tap new space for demand growth to strengthen domestic circulation, and promote the deep integration of scientific and technological innovation with industrial innovation to develop new quality productive forces.

Carol Liao, senior economist for China at Standard Chartered Bank (HK) Ltd, said: "China's 15th Five-Year Plan (2026-30) continues to push for consumption-based and technology-driven growth, underlining the country's structural transition …Patent-intensive industries have been expanding faster than the rest of the economy, indicating that a tech-driven growth model is taking shape."

Innovation and industrial upgrades should help China maintain a competitive edge in manufacturing — and therefore resilient exports — for the foreseeable future, Liao added.

She emphasized that the long-awaited rebalancing from investment to consumption is likely to gather momentum, with policy priorities shifting toward supporting households. In addition to the goods trade-in program, which is likely to continue into 2026 and be expanded to the services sector, the government has also announced multiple measures to support childcare and eldercare.

"The government might also improve the social safety net, moving toward a more unified and equitable social security system. This, together with efforts to stabilize the job market and asset prices, could help reduce the tendency for precautionary savings and boost household consumption," she said.

The 15th Five-Year Plan will usher in a critical period for China's manufacturing to transition from scale to strength, said Yang Fan, chief macro and policy analyst at CITIC Securities.

On the one hand, the consolidation and improvement of traditional industries will solidify the foundation of manufacturing. On the other, China will accelerate the industrialization of artificial intelligence technology, focusing on developing new pillar industries, such as new energy and aerospace, while also making forward-looking arrangements for future-oriented industries, such as embodied intelligence and sixth-generation mobile communication, Yang said.

"We believe that policies aimed at building a modernized industrial system could achieve the effect of 'setting everything right with one move', with significant progress expected in technological innovation, industrial upgrading, and the comprehensive rectification of involution-style competition," she said.

Looking ahead to 2026, analysts at CITIC Securities expect the macro economy to show a mild recovery trend under structural divergence, with exports maintaining resilience, investment gradually warming up, and goods consumption facing short-term pressure.

"During the 15th Five-Year Plan period, China's economic growth rate may reach around 4.8 percent, while the policy focus will tilt more toward demand, with services consumption coming to the fore," said Yang.

The fourth plenary session of the 20th Central Committee of the Communist Party of China adopted recommendations for formulating the 15th Five-Year Plan, which essentially provides China's economy with a new script, said Yu Xiangrong, Citi's chief China economist.

"The more important policy shift, in my opinion, is the pragmatic push to rebalance the economy," said Yu.

He noted that on the supply side, there is an emphasis on advancing the development of a unified national market and opposing involution-style competition; while on the demand side, there is a call for a notable increase in household consumption as a share of GDP and for more optimized and sustainable social security.

"The key now is how well the policies are implemented, but recognizing the problems is half the solution," he said.

Acknowledging that rebalancing consumption takes time, Yu said the efforts to boost spending next year are likely to rely more on structural measures than cyclical policies.

Next year marks the beginning of the 15th Five-Year Plan, with China expected to continue its transition toward high-quality growth under new strategic initiatives, said Liu Jing, chief China economist at HSBC Global Investment Research.

Liu highlighted that domestic consumption will likely benefit from comprehensive policy support, including ongoing consumption subsidies and longer-term enhancements to social benefits aimed at bolstering consumer confidence.

"We expect direct consumption stimulus measures to persist and likely expand beyond goods to include services. Support for services consumption — such as dining, tourism and entertainment — may be provided by both local as well as the central government," said Liu.

Over the longer term, she noted that government initiatives to strengthen the social safety net and improve access to public goods and services for rural migrant workers are set to boost disposable incomes, particularly among new urban residents.

Zhang Wenlang, chief macro analyst at China International Capital Corporation, said CICC expects policy efforts to focus on expanding the supply of high-quality consumer goods and services.

On the one hand, consumer potential may be unlocked from the supply side through measures such as easing market entry, optimizing administration, and streamlining regulation. On the other hand, supporting infrastructure in the consumption sector may also be strengthened, with fiscal, monetary and industrial policies used to promote the development of high-quality supply, said Zhang.

"Effective investment is likely to tilt further toward consumption-related areas, increasing the share of government investment in people's livelihoods and improving the layout of infrastructure and public-service facilities," he said.

This includes building supporting facilities for consumption — such as hospitals and clinics, schools and childcare centers, elderly friendly and barrier-free upgrades to public facilities, and amenities in tourist destinations — as well as infrastructure for durable-goods consumption, such as charging piles, private jet aprons and yacht berths.

CICC analysts expect the government to use fiscal and monetary tools including interest-rate subsidies and relending facilities to support the development of high-quality consumer supply, especially in services-consumption areas such as eldercare, childcare, healthcare, and cultural and sports services.

At the end of October, Goldman Sachs raised its real GDP growth forecast for China in 2026 from 4.3 percent to 4.8 percent, primarily due to stronger export growth assumptions.

With the 15th Five-Year Plan calling for upgrades to traditional industries and growth in emerging industries, along with coordinated government support from logistics to financing, economists at Goldman Sachs believe Chinese exports will continue to grow briskly — at 5-6 percent per year — and gain market share in the coming years.

They said the Fourth Plenum reiterated the goal of per capita GDP reaching the level of moderately developed countries by 2035.Based on realized growth from 2020 to 2025, this implies approximately 4.5 percent annual real GDP growth for 2026-30. By this logic, the government's growth target for 2026 is likely to remain "around 5 percent". Economic policies will need to be aligned to achieve these targets and goals.

The Central Economic Work Conference emphasized the need to maintain a more proactive fiscal policy next year and reaffirmed that China's monetary policy will remain moderately accommodative.

Yu emphasized that fiscal policy will continue to play a leading role next year, with a certain degree of expansionary focus. Citi projects the broader fiscal deficit scale for stabilizing the Chinese economy in 2026 will reach around 11.8 trillion yuan ($1.7 trillion), or 7.9 percent of GDP, an increase of 1 trillion yuan compared to 2025.

Deutsche Bank economists also foresee continued fiscal stimulus. "In addition to the recently announced 1 trillion yuan additional fiscal support through policy banks and local government bond quotas, we expect the government will keep the official budgetary deficit at 4 percent of GDP in 2026, and increase the special Chinese government bond quota to 1.5 trillion yuan from 1.3 trillion yuan this year," said Xiong.

He projects the aggregate fiscal deficit will remain high at 8.5 percent of GDP next year.

Investment activity is anticipated to rebound, particularly in infrastructure and manufacturing. The 500 billion yuan policy financing tool, launched in September to assist local governments with project funding, was fully distributed within a month and is expected to mobilize 7 trillion yuan in total investments, said Liu at HSBC.

Manufacturing investment will also be supported by reduced tariff uncertainty following the US-China trade truce and improved liquidity resulting from progress in settling local government arrears, Liu said.

Yang of CITIC Securities projected that fiscal policy will continue its mild expansionary path, optimizing the allocation of fiscal funds and accelerating the transformation of local government financing vehicles, while monetary policy will maintain a moderately loose tone, focusing on structural adjustments.

Looking ahead, Liao of Standard Chartered said: "We expect China's macro policies to remain supportive to cushion growth, but policymakers may avoid 'ultra-loose' measures to safeguard financial stability and balance short-term economic relief with the long-term structural agenda."

Standard Chartered economists expect the People's Bank of China, the country's central bank, to maintain an accommodative monetary policy next year, but with measured easing to manage financial stability concerns.

Liao and her colleagues expect the PBOC to inject sufficient liquidity to absorb the sizable government bond supply, including cutting the reserve requirement ratio by 25 basis points in the first quarter of 2026 and steadily purchasing central government bonds throughout next year.

They also expect the PBOC to ease the policy rate, with a 10 basis point cut to the seven-day reverse repo rate in the second quarter, mainly with a signaling purpose, as room for further reductions is limited by banks' shrinking net interest margins.