Economy remains stable, resilience set to persist
As 2025 enters the annals of history, some major international institutions — including the World Bank, the International Monetary Fund, the Asian Development Bank and the Organization for Economic Co-operation and Development — raised their growth forecasts for China. Moreover, the annual Central Economic Work Conference in December set out a clear assessment of current economic conditions, reaffirming the principles of pursuing progress while maintaining stability and signaling a more proactive macroeconomic stance aimed at reinforcing domestic demand alongside innovation-driven growth.
Against the backdrop of subdued growth expectations across most major economies, the alignment between external upgrades and domestic policy direction points to a shared judgment that China's economy remains broadly stable, with its resilience set to persist.
As the drag from high interest rates eases and policy coordination improves, the global economy entered a transition phase in 2025 characterized by recovery alongside structural adjustment. By 2026, the momentum accumulated earlier is expected to become clearer, while divergent growth paths across economies are likely to emerge.
At this juncture, China has outlined a forward-looking strategy aimed at cushioning external volatility with institutional stability, advancing structural upgrading to unlock long-term growth potential, fostering new quality productive forces to strengthen future competitiveness and energizing its vast domestic market through a stronger domestic demand framework.
First, China is seeking to secure long-term competitiveness through proactive structural adjustments. The Recommendations of the Central Committee of the Communist Party of China for Formulating the 15th Five-Year Plan for National Economic and Social Development call for upgrading the economic structure, improving the allocation of new resources and making better use of existing ones. Within this framework, the economy is undergoing a clear structural shift. The boundaries between traditional, emerging and future industries are becoming increasingly fluid, as the industrial system moves away from linear, chain-based volume expansion toward a more integrated, ecosystem-driven model. Competitive advantage is rapidly shifting from low costs to innovation, while growth is becoming less dependent on factor inputs and more driven by efficiency gains. At the same time, closer interaction between industrial restructuring and upgrading demand is strengthening domestic momentum. As supply and demand become better aligned, this structural realignment is providing sustained support for the development of a stronger and more resilient domestic market.
Taken together, these trends suggest that structural upgrading is becoming a key anchor for China as it navigates a more fragmented and uncertain global economy. Looking at 2026, investment in manufacturing is widely expected to continue growing faster than overall investment, reinforcing its role in supporting technological self-reliance and strengthening domestic demand. As innovation-driven growth gains traction, new technologies and capabilities are likely to spread more quickly and more broadly across the industrial landscape.
Second, China is drawing long-term momentum from its vast domestic market by strengthening the consumption cycle. Consumer demand is shifting away from reliance on short-term stimulus measures toward more durable, institution-based support, resulting in lower volatility and greater resilience. The structure of consumption is also changing, with growth increasingly driven by both goods and services, while services and digital spending are emerging as key new engines. At the same time, gains in purchasing power are spreading beyond a narrow group to encompass both urban and rural consumers, widening and deepening the foundations of domestic demand and reinforcing the stability of China's large domestic market.
Furthermore, economic indicators suggest that China still has considerable scope to strengthen consumption as a growth driver. In 2024, household final consumption accounted for about 40 percent of GDP, while the marginal propensity to consume was around 66 percent — both noticeably lower than in most advanced economies, indicating significant latent demand. The Recommendations of the CPC Central Committee for Formulating the 15th Five-Year Plan for National Economic and Social Development emphasize improving living standards while increasing consumer spending, and combining investment in physical assets with investment in human capital. Over time, consumption growth is likely to be driven more by structural factors such as income growth, stronger social protections and better public services. Together with supply-side innovation and ongoing institutional reform, these forces are expected to support a steady expansion in retail sales, with growth projected to reach around 4.6 percent by the end of 2026.
A stronger consumption cycle starts with rising purchasing power. In the first three quarters of 2025, per capita disposable income grew by 5.1 percent nationwide, with rural incomes rising even faster at 5.7 percent. Estimates suggest that if rural income growth runs two percentage points above its historical average, it could generate around 3.5 trillion yuan ($500 billion) in additional consumer demand between 2025 and 2029. At the same time, changes in the structure of consumption are becoming a key driver of demand expansion. China's huge domestic market is fostering rapid innovation on the supply side, as livestreamed e-commerce, instant retail and other new formats gain momentum, reshaping consumer behavior and accelerating deeper shifts in how consumption takes place.
As incomes rise and consumption patterns evolve, spending on services is moving into a period of rapid expansion, with demand accelerating across culture and entertainment, tourism, and health and eldercare. By the third quarter of 2025, services spending accounted for 46.8 percent of per capita household consumption, and a further rise toward 53 percent could, in theory, unlock around 14.9 trillion yuan in additional demand between 2025 and 2029, positioning services as the main engine of domestic demand growth.
Third, policy certainty is emerging as a key pillar underpinning China's economic stability. As global volatility intensifies and cyclical pressures overlap, a steadier, more forward-looking and better-coordinated macro policy framework is providing a solid foundation for growth at the outset of the 15th Five-Year Plan (2026-30) period.
On the fiscal front, greater emphasis will be placed on achieving a long-term balance between stabilizing growth, improving public well-being and containing risks. On the one hand, the fiscal deficit ratio in 2026 is expected to remain at around 4 percent, with new local government debt quotas likely to be issued earlier in the year, enabling front-loaded investment and helping stabilize the pace of infrastructure and public project construction. On the other hand, the structure of fiscal spending will continue to improve, with more resources directed toward education, healthcare, eldercare and technological innovation — areas that represent long-term investment in people — to foster growth models led by domestic demand, driven by consumption and sustained by self-reinforcing momentum.
Looking at 2026, monetary policy is expected to stay moderately accommodative, with further scope for easing through policy rates and the reserve requirement ratio. At the same time, policy-based financial instruments are expected to be further expanded and more closely aligned with central bank tools such as re-lending and rediscount facilities, creating stronger policy synergies.
The writer is chief economist at ICBC International Holdings Ltd. The article was originally published on Sina Finance Column.
The views do not necessarily reflect those of China Daily.
