> **来源：[研报客](https://pc.yanbaoke.cn)** # China Economic Perspectives # Key Themes and Possible Surprises in 2026 # Our baseline economic forecasts and key themes We expect China's GDP growth to slow modestly to $4.5\%$ in 2026. We expect exports to decelerate in 2026, leading to a much narrower growth contribution. Overall domestic activities are likely to stay largely resilient, with property downturn to continue albeit with smaller contractions, consumption to maintain a modest but softer pace, infrastructure and manufacturing investment to recover modestly from the sharp YoY decline in H2 2025. We expect CPI inflation to increase to $0.4\%$ , PPI to narrow decline, and RMB to appreciate vs its currency basket but largely stabilize vs the USD. See more in China outlook 2026. # Modest policy support, more rebalancing & structural changes We expect modestly supportive and more balanced policy tone in 2026, with 0.5-1ppt of GDP expansion of augmented fiscal deficit, including a stable headline budget deficit at $4\%$ and higher issuance of special CGB and LGB issuance; another 20bps of policy rate cut by end-2026 and 25-50bp RRR cut; and additional property easing. Boosting innovation is prioritized by the 15th Five-Year Plan and will likely contribute more to the economy. The mindset change to support consumption has been underway, although the initial effort may be still modest. Anti-involution campaign is likely incorporated in building a "unified national market". Promoting opening up and Chinese corporate going global are emphasized. See more in CEWC takeaways. # Possible surprises and key uncertainties As 2026 is the first year of new FYP period, policy support may surprise on the upside to achieve a more ambitious growth target ("around $5\%$ " again vs UBSe: $4.5 - 5\%$ ). Faster implementation of structural measures and stronger policy support would boost domestic confidence and economic growth. Property market trajectory is also hard to predict accurately in such an unprecedented downturn. Exports and RMB exchange rate could surprise on the upside, while disappointment in exports could trigger more meaningful policy support. Uncertainties related to US trade & tech policies and China's policy response may lead to risks to our baseline forecast. Faster AI development and adoption can generate more tech exports, stronger CAPEX and larger productivity gain, while an AI bubble burst could hit China. # Economics China Ning Zhang Economist ning.zhang@ubs.com +852-2971 8135 Jennifer Zhong Economist S1460516050002 jennifer-a.zhong@ubs.com +86-105-832 8324 Grace Wang Economist S1460524050003 grace-zc.wang@ubs.com +86-105-832 8335 Yu Song Economist S1460526010002 yu-za.song@ubs.com +86-10-5832 8508 # Key themes and baseline forecast for 2026 Our baseline expects China's GDP growth to moderate to $4.5\%$ in 2026 from around $5\%$ in 2025, mainly due to a smaller growth contribution from net exports. Exports growth may soften from the solid pace in 2025 due to delayed impact of US tariff hikes and global demand slowdown, although the US-China trade truce could offer a small offset. Property activities are expected to decline further in 2026, albeit with smaller contractions and less of a drag on GDP growth than in 2025. Consumption growth will likely maintain a modest but slower pace, given soft income growth and diminishing impact of fiscal subsidies. Manufacturing and infrastructure investment may recover in 2026 from a surprising YoY contraction in H2 2025. We expect a modest broad fiscal expansion (0.5-1% of GDP) and 20bps of policy rate cuts in 2026, while more policy efforts on support innovation, consumption, anti-involution and opening up could help promote China's rebalancing. We summarize our baseline forecast with latest updates in this report. See more in China outlook 2026 and CEWC takeaways. Specifically, our key macro themes for 2026 are as follows: Export growth to soften in 2026. The expected slight slowdown of global growth, paybacks from previous front-loading, stronger RMB in real effective terms, and a higher base effect may weigh on export growth in 2026. Shipments of AI and tech related products may maintain solid growth. With the US-China trade truce, we assume the weighted average US tariff rate to maintain largely stable at around $35\%$ in the coming year. This agreement marks a truce but not an end to the evolving US-China trade tensions, while new frictions could possibly arise again. Nevertheless, lower US additional tariff and reduced near-term uncertainties could help stabilize China's exports to the US and improve overall corporate sentiment. China's exports to the US declined notably by $-19\%$ while those to non-US market stayed robust at $10\%$ YoY in Jan-Nov 2025. We expect this divergence to reverse in 2026, with export growth to the US improving especially after April 2026 on a low base, while exports to non-US markets is likely to moderate. Overall, we expect headline export growth to slow to $2.5 - 3\%$ and the growth contribution from net exports to narrow notably in 2026. Property downturn to continue, with less decline and a smaller drag on growth. The ongoing sharp property downturn has been driven by weakening underlying housing demand on slowing urbanization and unfavorable demographics, a shift from purchase to rent amid falling prices, and elevated inventory-to-sales ratio with limited progress of home destocking. Looking forward, we expect the government to lower mortgage rates further by 30-40bp in 2026, while fiscal subsidies on mortgage loans are possible but encountering various policy challenges. We think more meaningful policy efforts should be devoted to home inventory destocking and more progress of structural reforms (such as hukou reform) could help stabilize the housing market. Overall, we expect property sales, new starts and investment to decline by $5 - 10\%$ in 2026 and $0 - 5\%$ in 2027 (vs $8\% /21\% /16\%$ decline in Jan-Nov 2025), and the overall drag of property activities on GDP growth may narrow to 0.5-1ppt in 2026 and further smaller in 2027. Figure 1: Exports to moderate in 2026E with divergence between US and non-US markets Source: CEIC, UBS estimates Figure 2: Property activities to decline further but by less in 2026-27E Source: UBS estimates Consumption growth to maintain a modest but softer pace in 2026E. Retail sales growth of subsidized goods (excluding auto) slowed notably from $27\%$ YoY in H1 2025 to $4\%$ YoY during Sep-Nov on a high base from trade-in subsidies, while that of nonsubsidized sectors has been largely stable at $3 - 4\%$ YoY. Latest information shows that the simply annualized total trade-in subsidies in 2026 (RMB 250bn) may be $17\%$ lower than that in 2025 (RMB 300bn), with narrower coverage and lower subsidy cap per product (see more). In addition, China is set to normalize the auto purchase tax for NEVs from $0\%$ to $5\%$ . These may weigh on sales growth of subsidized goods and auto sales, although we still see some upside for 2026 full-year subsidies given the lingering headwinds and a high base. Persistent negative wealth effect from declining housing prices may be partly offset by equity market rally, which however may still restrain overall consumer spending. On the other hand, the new Five-Year Plan pledges to "significantly" increase household consumption share in GDP, aiming to promote household income growth, increase fiscal spending in social safety net and create quality supply especially in services. It indicates a structural mindset change of consumption policies, while the initial policy strength in 2026 may be modest and gradual. Overall, we expect China to maintain a modest but softer consumption growth in 2026. FAI growth to recover modestly in 2026E from the sharp decline in H2 2025. Total FAI declined by $-2.6\%$ YoY in Jan-Nov 2025 due to an unexpected contraction of infrastructure and manufacturing FAI in H2 $(-8\%)$ and $-3\%$ YoY, respectively). Recent weakness may be linked to the capacity control pressure amid the ongoing anti-involution campaign, continued tight control of LGFV financing, reduced actual deployment of new special LG bond issuance for investment, projects being delayed to 2026 to benefit more from the new FYP policy support, and some statistical adjustments for a low base. In 2026 (the first year of new FYP), we expect infrastructure FAI to recover to mid-single digit growth, supported by the kick-off of delayed projects, special financing tools from policy banks (RMB 500bn in 2025 and potentially additional tools in 2026), and expected larger issuance of special CGB and special LGB. New infrastructure related to IT networks and AI computing power as well as upgrading of traditional infrastructure should receive more support (see new FYP proposal). Continued fiscal subsidies for equipment upgrading may underpin related corporate CAPEX, while investment related to innovation and tech self-sufficiency should remain strong. Figure 3: Retail sales growth to decelerate partly on diminishing support from trade-in subsidies Source: CEIC, UBS estimates Figure 4: Infrastructure and manufacturing FAI growth to recover from the unexpected decline Source: CEIC, UBS estimates CPI inflation to edge up and PPI to narrow decline in 2026E. CPI records $0\%$ and PPI declines by $-2.6\%$ in 2025, both weaker than 2024, although core CPI improves to $1.1\%$ YoY and headline PPI turned less negative to $-2.1\%$ YoY in Q4. In 2026, diminishing impact of subsidies, more modest gold price increase, slightly slower consumption and export growth may bring core CPI inflation softer, food prices may rebound modestly, while energy prices may stay weak, all together leading to a small rebound of headline CPI to $0.4\%$ . Meanwhile, we expect the anti-involution campaign to slightly improve the capacity utilization ratio through supply side measures and changes of regulation rules & industrial standards. That said, the absence of substantial demand-side boost means sequential PPI improvement will be gradual and slow, while headline PPI may only turn positive YoY in end-2026 or early-2027. Overall, China's GDP deflator may be still in a slight deflation but much less negative than in 2025. RMB to appreciate vs its currency basket while largely stabilize vs the USD in 2026. We expect China to maintain strong export competitiveness and a sizable current account surplus of $\sim 3\%$ of GDP in 2026 despite slower export growth. Recent US-China trade truce should help stabilize market confidence. Previous notable RMB depreciation against its currency basket since 2022 (especially in 2025) may lead to upward pressure on RMB in REER terms. We expect RMB to appreciate vs its currency basket in the coming years. That said, UBS expects the USD to strengthen modestly against the EUR/JPY/GBP in 2026. UBS also anticipates robust US treasury yields despite further Fed rate cuts, maintaining a still wide US-China yield spread (see UBS global outlook). China may increase its flexibility of managing RMB exchange rate, while continue to refrain from proactively using RMB to address external uncertainties. Therefore, we expect USDCNY to trade at around 7.0/6.9 at end end-2026/2027, with two-way fluctuations. Figure 5: CPI to edge up and PPI to narrow decline in 2026E Source: CEIC, UBS estimates Figure 6: RMB to appreciate vs its currency basket but largely stabilize vs the USD Source: CEIC, UBS estimates Modestly supportive and more balanced policy tone in 2026. With lingering growth headwinds and external uncertainties, we expect the government to set a modestly supportive and more balanced policy stance in 2026 (see CEWC takeaways). We think the government may set a slightly slower growth target of $4.5 - 5.0\%$ for 2026 and emphasize more on "high quality growth". We expect a modest broad fiscal expansion by 0.5-1ppt of GDP in 2026 (vs 1-1.5ppt in 2025), including a stable headline budget deficit at $4\%$ , modestly larger issuance of special CGB and special LGB, more funding support from policy banks, and continued LGFV debt swap. Fiscal expenditure will likely be optimized to address local fiscal difficulties and basic spending needs, support social welfare and social safety net, while tax incentives and fiscal subsidies may be normalized. We expect another 20bps of policy rate cut by end-2026, and PBC to maintain ample liquidity with 25-50bps RRR cut and various other tools. TSF credit growth may moderate to below $8\%$ in 2026 with smaller new issuance of government bonds. In addition, the new FYP outline will be finalized and approved by the March NPC meeting, detailing key themes and directions of China's future development. Boosting innovation as a top priority and expected to contribute more to growth. We estimate the innovation-driven "new economy" sectors accounted for 15-20% of China's GDP and 10-15% of total investment in 2024 and contributed around 1/4 of GDP growth during 2020-2024. The rapid rise of "new economy" sectors has helped offset the significant drag on growth from the sharp property downturn. China is determined to continue boosting innovation in the next 5 years, and the share of R&D spending in GDP is expected to rise further from 2.7% in 2024 to over 3.2% in 2030. With continued policy priority, sustained investment and strong R&D spending, we expect the "new economy" sectors to continue growing faster than the rest of economy during 2026-2030. The CEWC placed greater emphasis on innovation by establishing international innovation centers, enhancing IP protections, and implementing the "AI Plus" initiative. More efforts in anti-involution and opening up. The government vowed to rectify involution-style competition under the theme of advancing a "unified national market", aiming to level the playing field, enhance property rights protection, streamline market access, and facilitate efficient market exits. It also plans to regulate local governments' economic promotion activities (especially investment), eliminate local protectionism and market segmentation. We think a comprehensive top-level guidance on anti-involution is likely to be absent in the near term. The new FYP may still focus mainly on differentiated supply-side measures, while boosting demand will be crucial to the campaign's success (see more discussions). On the other hand, we expect China to further open up service sectors, advance RMB internationalization, and establish a RMB cross-border payment system. Two-way investment will be promoted, including further shortening the negative list for foreign investment, and promoting Chinese corporate going global for market expansion and supply shift. Figure 7: AFD to expand by 0.5-1ppt in 2026E, with stable headline fiscal deficit (\% of GDP) Source: CEIC, UBS estimates Figure 8: PBC to cut policy rate by 20bps in 2026E Source: CEIC, UBS estimates Figure 9: R&D spending to pick up further in the next 5 years Source: CEIC, UBS estimates Figure 10: China to set an explicit target of consumption share of GDP in the new FYP Source: CEIC, UBS estimates # Possible surprises in 2026 The timing and size of China's policy support is also uncertain, so is the property downturn. As 2026 is the first year of new FYP period, policy support may surprise on the upside to achieve a more ambitious growth target ("around $5\%$ " again vs UBSe: $4.5 - 5\%$ ). Bigger-than-expected fiscal support for the household sector (such as consumption subsidies, social safety net spending), stronger rebound of infrastructure investment, and faster progress of structural measures could boost domestic confidence, GDP growth and inflation above our baseline forecast. Vice versa, later and weaker-than-expected policy stimulus and structural reforms could result in weaker growth and inflation outlook. In addition, the future trajectory of China's property market depends on support measures, overall economic situation and household sentiment, which is hard to predict accurately in such an unprecedented downturn. If the government could lower mortgage rates more aggressively, reduce home inventory more effectively, and push for structural reforms more decisively, the housing market could stabilize earlier than our cautious baseline expectation. Exports and RMB may surprise on the upside. Stronger-than-expected global economic growth, further gain of China's global market share in non-US trading partners, more demand for Chinese intermediate and capital goods from global supply chain, and more positive change of export prices may lead to some upside of China's total export growth in 2026, vs our baseline forecast of $2.5 - 3\%$ . On the other hand, if export growth disappoints, it is likely to trigger more forceful domestic policy support. RMB exchange rate may surprise on the upside against the USD, if the USD comes in weaker than UBS expectations vs other major currencies, Chinese traders' RMB demand for FX settlement picks up more, and/or foreign capital inflows into China accelerates more than expected. Risks on US-China relations still linger. The US-China trade truce has significantly reduced short-term risks, especially ahead of President Trump's scheduled visit to China in April 2026. That said, this does not mark an end to the evolving US-China trade tensions, and new disputes could arise from areas outside of the truce deal. If the US hikes tariffs again or tightens restrictions on China's tech and emerging sectors, it would bring additional downward risks. In addition, tighter implementation of "rules of origin" or deterioration of China's relations with other trading partners could lead to additional challenges. In contrast, if the US lowers the existing additional tariffs or offers large-scale tariff exemption for Chinese goods, export and economic growth could benefit. The development of AI and its adoption is uncertain. On the one hand, stronger-than-expected conviction of AI investment may increase global demand for tech products and benefit China's related exports, while China's AI investment may also rise more rapidly, partly from the spillover effect from the US and partly from the tech self-sufficiency push at home. Meanwhile, the adoption and application of AI technology may start to drive China's productivity and efficiency higher than expected, although the continued US tech restrictions are likely still detrimental. On the other hand, in a downside risk scenario of global AI bubble burst, it would hurt China's growth through a fall in related exports and supply chain orders, hit on market confidence, and weakening of tech sector CAPEX. # Required Disclosures This document has been prepared by UBS Securities Asia Limited, an affiliate of UBS AG. UBS AG, its subsidiaries, branches and affiliates, including former Credit Suisse AG and its subsidiaries, branches and affiliates are referred to herein as "UBS". 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