China to focus on stimulating consumption next year

Facing external uncertainties and a persistent slump in the property sector, China is expected to roll out more robust initiatives to stimulate consumption in 2026, in an effort to lay a solid foundation for the start of its 15th Five-Year Plan (2026-30), analysts said.

To achieve the goal of becoming a "mid-level developed country" by 2035, a status loosely defined by a per capita GDP benchmark, China's economy should grow at an average annual rate of about 4.2 percent from 2026 to 2035, covering the 15th and 16th Five-Year Plan periods, Zhang Chaoyue, senior analyst at the Northeast Securities, said.

"In particular, 2026, as the opening chapter of China's next five-year plan, is likely to see its growth target set at around five percent, unchanged from this year," Zhang said.

However, analysts cautioned that achieving this growth will require navigating a complex landscape as the traditional engine of real estate remains a persistent drag, while external demand is clouded by geopolitical tensions and protectionism.

The government will need to muster a package of consumption-boosting initiatives with targeted fiscal support in place, they added.

The Political Bureau of the Communist Party of China Central Committee held a meeting on Monday to analyze and study the economic work of 2026 — making it clear that the country will continue to exercise a "more proactive" fiscal policy.

Financial institutions, including CITIC Securities, have projected the deficit-to-GDP ratio to remain at around four percent in 2026.

Chinese policymakers have also set explicit targets to "achieve a notable increase in household consumption as a share of GDP" when formulating recommendations for its next five-year blueprint.

The trade-in program, according to a report by Guosheng Securities, is likely to continue next year, with its fiscal funding maintained at no less than this year's level of 300 billion yuan ($42.4 billion) in 2026.

Ming Ming, chief economist of CITIC Securities, said that the trade-in programs — alongside broader efforts to boost spending — has unlocked domestic demand and provided a much-needed jolt to the consumer sector in 2025.

However, due to the front-loading of the consumer subsidies in the first half of the year and the natural tapering of initial enthusiasm for the programs, the stimulative effect of these policies appears to be waning, Ming added.

In October, the total retail sales of consumer goods grew by 2.9 percent year-on-year, marking the fifth consecutive month of deceleration, data from the National Bureau of Statistics showed.

Looking ahead to next year, Xu Dongsheng, vice-chairman of the China Household Electrical Appliances Association, suggested that policymakers could introduce differentiated subsidy rates based on a product's price range and technological sophistication.

In late November, in its latest move to provide sustained momentum for consumer spending, China unveiled a plan to improve the alignment of the supply and demand of consumer goods. The plan highlighted the application of AI across all sectors and processes of the consumer goods industry, boding well for AI-powered consumption.

"According to our research, 85 percent of Chinese consumers, for instance, consider AI features highly influential in their next smartphone purchase decision," Liu Yixuan, head of mobile phone industry research at the global technology research and advisory firm Omdia, said.

At the same time, 33 percent of Chinese consumers are currently paying for AI tools, a rate higher than the global average of 20 percent across sampled countries, Liu added.

"As AI capabilities advance and consumer awareness grows, Chinese users are increasingly valuing the AI experience of their devices and show a clear willingness to pay for enhanced AI features," Liu said.

Moreover, Shen Jianguang, chief economist at Chinese e-commerce platform JD, said policymakers should also consider enhancing fiscal support for service consumption, for instance, by rolling out consumption vouchers or other incentive programs.