The International Monetary Fund (IMF) released its latest World Economic Outlook report in January, adjusting the global economic growth forecast for 2026 to 3.3%, an increase of 0.2 percentage points from the October 2025 projection. China remains a primary driver of the world economy. As January's macroeconomic data is gradually released, the performance of China's economy at the beginning of 2026 is becoming clearer.
On February 11, KPMG published its China Economic Monitor report for the first quarter of 2026, anticipating that, with current policy support, China's domestic economic growth will remain steady in 2026, and the divergence between supply and demand is expected to narrow at an accelerated pace. Investment and consumption demand driven by emerging industries are still insufficient in the short term to fully offset the reduction in demand caused by adjustments in traditional industries, meaning overall demand recovery continues to face some pressure. However, with the proactive deployment and precise implementation of national policies aimed at stabilizing growth and expanding domestic demand, macroeconomic policies are maintaining a steady expansionary stance. The concentrated launch of major projects and the accelerated implementation of related support policies will effectively stimulate demand across industrial chains, helping to alleviate pressures from contracting overall demand and gradually pushing the economy toward stabilization and recovery.
The report highlights that China's economic aggregate reached 140 trillion yuan in 2025, with real GDP growing 5.0% year-on-year, meeting the target set at the beginning of the year and marking a successful conclusion to the annual economic performance. However, structural divergences persist, including imbalances between supply and demand, disparities between domestic and external demand, varying performance between old and new growth drivers, and a gap between macroeconomic data and micro-level perceptions. Some traditional industries continue to be constrained by "involution-style" competition, making it difficult to quickly eliminate excess capacity, which has led to weak demand coexisting with expanding supply. This mismatch has contributed to persistently low price levels, further affecting corporate profits and household income, thereby constraining the recovery of demand in the next phase.
To better promote the sustained recovery of domestic demand, coordinated efforts are needed from the demand side, supply side, institutional mechanisms, and the external environment. On the demand side, it is essential to continue increasing financial support for key sectors and major projects to stabilize effective investment, while also strengthening social welfare investments. Improving public services and stabilizing household expectations can help unleash consumption potential. Additionally, reducing financing costs for private enterprises and easing market access will stimulate private investment vitality. State-owned enterprises should play a stronger role in driving investment, and greater efforts should be made to promote the development of private investment, particularly by reducing financing costs and barriers for private enterprises through mechanisms such as special guarantees, loan interest subsidies, and risk sharing, thereby effectively energizing social capital and forming an investment landscape where both government and market forces contribute.
In terms of consumption, total retail sales of consumer goods increased by 3.7% year-on-year in 2025, a slight rise of 0.2 percentage points from the previous year. With the growing trend of self-rewarding consumption, household consumption structure is accelerating its shift toward quality and experiential spending. Growth in sectors such as gold, silver, jewelry, cosmetics, and apparel has seen a moderate rebound. It is expected that in 2026, the consumer market will continue to develop steadily with an emphasis on innovation and quality improvement. Policies promoting the replacement of old goods will continue, with a greater focus on targeted measures, particularly favoring green consumption, smart consumption, and elderly care consumption.
Investment still requires ongoing policy support to consolidate the recovery foundation and stimulate growth momentum. On one hand, innovative use of tools such as central budget内 investment, ultra-long-term special government bonds, and local government special bonds is needed, along with further improving the system of new policy-based financial instruments to enhance the efficiency of fund utilization. On the other hand, in line with the formulation of the 15th Five-Year Plan, it is important to plan ahead and promote the implementation of a number of strategically significant major projects and initiatives in key areas such as infrastructure upgrades, urban renewal, public service improvements, and the cultivation of emerging and future industries.
On the supply side, while nurturing and expanding emerging industries, it is crucial to accelerate the digital and intelligent transformation of traditional industries, creating and leading new demand with higher quality and better-suited supply. At the same time, optimizing local development guidance and accounting mechanisms will steer regions toward emphasizing development quality and efficiency, providing institutional support for the growth of domestic demand.
Looking ahead to 2026, with the combined support of coordinated policies, project reserves, and improving market expectations, the economy is expected to gradually recover. In terms of policy support, the effects of the 500 billion yuan in new policy-based financial tools launched in 2025 are gradually being felt, and the first batch of ultra-long-term special bond funds for 2026 have been allocated, with a scale significantly larger than the same period last year, providing direct support for equipment upgrades and technological transformation.
Financial support is also strengthening. For example, the relending quota for technological innovation has been expanded to 1.2 trillion yuan, with coverage extended to privately-owned small and medium-sized enterprises with high R&D investment, accompanied by fiscal interest subsidies to reduce corporate financing costs. Additionally, the establishment of the national venture capital guidance fund will attract multi-level capital through a layered structure, forming a long-term capital supply to aid the development of strategic emerging industries.
As construction of "dual-heavy" projects accelerates, major projects commence in an orderly manner, the environment for private investment continues to improve, and the effects of a series of investment-stabilizing policies become apparent, investment in 2026 is expected to gradually stop declining and stabilize, providing key support for sustained economic recovery. Particularly, private investment, incentivized by policies such as lower financing thresholds and eased project access, will become an important force driving the rebound in investment.
In terms of macroeconomic regulation, greater emphasis should be placed on the counter-cyclical role of fiscal policy, with policy efforts tilted more toward effectively expanding domestic demand, enhancing the targeting and effectiveness of policy implementation. Boosting household consumption should be a key lever for expanding domestic demand, steadily increasing residents' disposable income, vigorously developing service consumption, and releasing greater consumption potential through urban-rural integration and new urbanization.
Furthermore, it is essential to accelerate the establishment of a unified national market, optimize the business environment, and support companies in exploring international markets. Improving corporate profitability will help raise household income, forming a virtuous cycle for the continuous expansion of domestic demand. The stable and healthy development of the real estate market should be steadily promoted, accelerating the construction of a new development model and safeguarding the bottom line of economic security. At the same time, balancing domestic and international considerations, steadily advancing high-level opening up, maintaining the RMB exchange rate basically stable at an adaptive and equilibrium level, and stabilizing the fundamentals of foreign trade and investment will create a stable and favorable internal and external environment for expanding domestic demand.