What to expect for the Year of the Horse
Special points to highlight in this report:
- China’s economy ended 2025 much as it began—with an overreliance on a growing trade surplus and non-productive investment to drive growth. A sharp decline in the latter over the year saw quarterly GDP growth decline steadily from a very strong 5.4% in the first quarter of the year to 4.5% in the last quarter.
- Beijing will almost certainly do everything it can to revive growth in fixed asset investment in early 2026, but because property investment is almost sure to continue declining, and because it has become harder than ever to justify a surge in infrastructure investment, I expect much of this investment growth to occur in the non-involuted manufacturing sectors. These are the sectors in which foreign competitors are going to be under intense global pressure in 2026.
- The biggest question mark in 2026, as it was in 2025, is the evolution of China’s trade surplus. If it continues to grow strongly, this will reduce pressure on Beijing to increase investment and, with it, China’s high and rapidly rising debt burden. If, on the other hand, external pressures force a contraction in China’s trade surplus, Beijing will set off an even faster rise in China’s debt burden as it unleashes even more investment to prevent growth from slowing.
- If all of this sounds like it might be the same story I have been discussing in my reports all last year, that’s because it is. In spite of rising worries about how an unsustainable reliance on debt and trade surpluses is needed to keep growth at targeted levels, nothing fundamental has changed in the way Beijing manages the Chinese economy.
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