China Economic Outlook. March 2026

Summary

The Chinese economy grew by 5% in 2025 driven by exports, despite weak domestic demand and the real estate crash. 4.5% growth is expected for 2026, supported by stimuli and measures against industrial overcapacity. Reflation narrative is on the rise amid the Iran war.

Key points

• Key points:
• The government campaign against "involution" seeks to curb the price war and deflation, reducing export tax benefits in sectors with overcapacity such as "New Trio".
• Despite trade tensions with the US, the trade surplus expanded significantly due to manufacturing competitiveness and the redirection of exports towards markets other than the United States.
• The risk scenario due to the conflict in the Middle East would have a limited macroeconomic impact on China, but will slightly increase inflation due to more expensive global energy prices.
• Forecasts point to a proactive monetary policy with 1-2 rate cuts and RRR cuts during the year, but reflation situation should be carefully monitored.

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