China's economy grew by 5.2% year-on-year in the first three quarters of 2025. Despite facing downward pressure in the fourth quarter, the full year is expected to achieve the growth target of around 5%.
Specifically, despite facing international economic and trade frictions, China's goods exports from January to November 2025 increased by 6.2% year-on-year, demonstrating strong resilience. The total retail sales of consumer goods from January to November grew by 4% year-on-year, while service retail sales rose by 5.4% year-on-year, indicating a continued recovery in consumption, particularly with rapid growth in upgraded service consumption. From January to November, fixed-asset investment decreased by 2.6% year-on-year, although investment in high-tech industries maintained relatively high growth.
The Central Economic Work Conference pointed out that in 2026, it will be necessary to better coordinate domestic economic work and international economic and trade struggles, implement more proactive and effective macro policies, continuously expand domestic demand, optimize supply, develop new quality productive forces according to local conditions, deepen the construction of a nationally unified market, continuously prevent and resolve risks in key areas, focus on stabilizing employment, enterprises, markets, and expectations, and promote effective qualitative improvement and reasonable quantitative growth in the economy.
How should we view the economic performance in 2025 and the macroeconomic situation in 2026? What economic growth rate should be pursued in 2026? How can consumption be better boosted? How can more proactive and effective macro policies continue to be implemented? Which structural reforms should be prioritized? Focusing on these questions, Liu Yuanchun, a member of the China Finance 40 Forum (CF40) and President of Shanghai University of Finance and Economics, gave an exclusive interview.
Liu Yuanchun stated that economic work in 2026 may proceed along two main lines: first, short-term expansion of domestic demand and risk control to counter various cyclical downward forces, promoting a bottoming-out and rebound in the investment cycle, debt cycle, and real estate cycle.
Second, continuously advancing the construction of an innovation-driven growth model, persistently focusing on the systematic layout of a modern industrial system and technological self-reliance and self-improvement, fostering China's basic research, industrial upgrading, and sci-tech finance to develop forces that can transcend cycles, further forming profitability for micro-entities, aiding industrial structure transformation and upgrading, and providing medium- to long-term development solutions to address short-term cyclical problems.
2026 Growth Target Recommended to be Set Around 5% Q: China's economy grew by 5.2% year-on-year in the first three quarters of 2025. What is your expectation for the economic growth rate in the fourth quarter? How do you view the full-year economic performance in 2025? Liu Yuanchun: According to various calculations, from the demand side, the economic growth rate in the fourth quarter is expected to be around 4.5%; the supply side performance will be somewhat better, for instance, the growth rate of industrial added value in the fourth quarter is expected to be around 4.8%. Therefore, the final calculation suggests the GDP growth rate in the fourth quarter is expected to be around 4.6%, with the full-year economic growth rate for 2025 at 5%.
The year 2025 was an extremely extraordinary one. Some cyclical factors of the Chinese economy are still hovering at the bottom, especially as the real estate market continues to adjust; structural issues remain unresolved, with the transformation between old and new drivers still ongoing; external shocks have intensified, with extreme pressure measures like US "reciprocal tariffs" having a significant impact on the market, but the overall impact on China's foreign trade and economy was smaller than expected. Under such circumstances, the Chinese economy still maintained a growth rate of around 5%, continuing the trend of stability and progress in the national economy, which is no easy feat.
The extraordinariness of 2025 is also reflected in many other aspects. For example, the emergence of DeepSeek has brought a major shift in the narrative of Chinese assets. With the continuous advancement of China's industrial upgrading, driven by industrial sophistication, systematic innovation, and cutting-edge technology, although the micro-foundation of the market still needs consolidation, sentiment in the capital market and the financing conditions of business entities are better than expected.
A horizontal comparison reveals that countries which experienced deep adjustments in their real estate markets in past decades generally saw negative economic growth of 3-5 percentage points at the time; against the backdrop of major power competition, the foreign trade of many countries experienced negative growth. However, in 2025, China's macroeconomy was still able to maintain relative stability, and the innovation-driven model was further consolidated, which are commendable achievements.
Q: As the first year of the "15th Five-Year Plan" period, what economic growth rate should be pursued in 2026? To reach the level of a moderately developed country by 2035, what economic growth rate is needed during the "15th Five-Year Plan" period? Liu Yuanchun: The five years of the "15th Five-Year Plan" period are crucial for basically realizing socialist modernization by 2035.
If the goal is to double the per capita GDP in 2035 compared to 2020, then an average annual economic growth rate of 4.17% from 2026 to 2035 would be sufficient. Following the economic growth pattern of "higher growth earlier, lower later," and considering the need to solidify the foundation, an economic growth rate of around 4.5% during the "15th Five-Year Plan" period would be achievable.
If the goal is to reach the level of a moderately developed country by 2035, meaning a per capita GDP of no less than $26,000, this imposes higher requirements on the growth rate during the "15th Five-Year Plan" period. Considering changes in population, exchange rates, and other factors, for China to enter the ranks of moderately developed countries, the economic growth rate during the "15th Five-Year Plan" period needs to be maintained at around 5%.
Since the cyclical forces in the Chinese economy are still at a bottoming stage, the Chinese economy during the "15th Five-Year Plan" period may exhibit a pattern of "lower growth earlier, stabilizing later." It is expected that China's economic growth rate in 2026 will be around 4.8%.
As the inaugural year of the "15th Five-Year Plan" period, the economic growth target for 2026 should not be set too low; considering that cyclical factors are still bottoming out, the target should also not be set too high. It is recommended that the target for 2026 be set at around 5%.
Domestic Demand Expected to Bottom Out and Stabilize Q: What is the outlook for the economic situation in 2026? What are the expectations for consumption and investment? How is the import and export situation expected to perform? Liu Yuanchun: Judging from the部署 of the Central Economic Work Conference, 2026 will continue the main thread of innovation-driven growth, focusing on the systematic layout for building a modern industrial system and achieving technological self-reliance and self-improvement. This will foster forces in China's basic research, industrial upgrading, and sci-tech finance that can transcend cycles, further transmitting to micro-entities, aiding structural transformation and upgrading, and laying a solid foundation for a comprehensive economic recovery.
2026 will still be a year of全方位 expanding domestic demand. Proactive fiscal policy and appropriately loose monetary policy will continue to exert effort, launching some major iconic projects. Although some cyclical forces are still hovering at the bottom, under the influence of policies, domestic demand is expected to show a trend of bottoming out and stabilizing.
2026 is an important year for bottoming out, a crucial year for reversing the cyclical downward forces. Preventing cyclical problems from transforming into structural issues, and preventing short-term problems from becoming long-term, will be a very important task for current macro-control.
From the perspective of the external environment, although Sino-US economic and trade frictions may see阶段性缓和, external uncertainties remain high, especially with changes in the US economy, leading to significant uncertainty in international capital flows. Therefore, 2026 will still be a year where China's export competitiveness is demonstrated amidst uncertainty. It is expected that external demand will be relatively stable in 2026 and will continue to be an important fundamental support for China's economic growth.
Q: From January to November 2025, total retail sales of consumer goods increased by 4% year-on-year, and service retail sales increased by 5.4% year-on-year. While service consumption has its bright spots, the overall recovery of consumption remains relatively slow. What are the main reasons behind this? How can consumption be better boosted in 2026? Liu Yuanchun: Consumption is the result of economic adjustment, not the cause. The current relative sluggishness in consumption is both a product of the deep adjustment of cyclical forces and a product of structural problems being at a critical transition period, also affected by institutional factors. Consumption is a slow-moving variable; when cyclical forces are still hovering at the bottom, one cannot simply expect consumption to return to normal immediately.
Therefore, to boost consumption, it is necessary to implement a package of measures to expand domestic demand, combining short-term and long-term strategies, integrating short-term consumption promotion policies with medium- to long-term structural reforms.
First, the intensity of policies to promote consumption will be further increased in 2026, combining fiscal policy and financial tools to弥补 the consumption gap caused by cyclical forces, leading to continuous marginal improvement in consumption.
Second, the repair of household balance sheets is expected to accelerate in 2026. It is highly probable that the real estate market in first-tier cities will reverse in 2026, coupled with improved sentiment in the capital market. These factors will help repair household balance sheets, thereby推动改善 consumption expectations.
Third, both the Fourth Plenary Session of the 20th Central Committee and the Central Economic Work Conference have sent positive signals, insisting on closely linking the improvement of people's livelihoods with the promotion of consumption, continuously promoting employment and income growth for residents, improving the social security system, and optimizing the income distribution system. The positive effects of these measures will be gradually released.
From a medium-term perspective, the bottoming out and recovery of consumption is an inevitable trend. The steady recovery of consumption is an indirect result of improved growth expectations among residents, the repair of balance sheets, and the完善 of the security system. The current state of consumption is likely at its lowest point. Although arduous efforts are still required, we can anticipate that 2026 will be a critical year for achieving a reversal in consumption.
Forming a New Growth Model Supported by Multiple Pillars Q: What are the main current cyclical factors and structural contradictions? Liu Yuanchun: Currently, areas like real estate and investment are at cyclical bottoms. After years of adjustment, many parameters in the real estate market are in a stage of bottom consolidation. Investment turned negative in 2025, indicating it is also at a cyclical bottom. With the新一轮置换 of local hidden debt, local finances are expected to gradually bottom out and recover. Coupled with the accelerated layout of strategic emerging industries and future industries, a cyclical reversal in investment is foreseeable.
Cyclical factors fluctuate; they fall and they rise, following a规律性 pattern. In recent years, China has faced the叠加 of several major cycles, putting the economic operation in an unusual stage. But we must remember that cyclical forces will inevitably rotate.
Structural contradictions mainly refer to problems in the industrial structure. Previously, China relied heavily on traditional industries like real estate and infrastructure, and we are still in the process of transforming between old and new drivers. In recent years, the proportion of high-tech industries in China has continuously increased, while the share of real estate and construction has declined.
Specifically, the proportion of real estate and construction in GDP has fallen to around 13%, the added value of core digital economy industries accounts for over 13% of GDP, and the "Three New" economy—centered on new industries, new business forms, and new business models—accounts for over 18% of GDP.
China's industrial structure is continuously optimizing, gradually forming an innovation-driven growth model supported by multiple pillars. In the future, with the stabilization of the real estate market and the continuous advancement of "anti-involution" work, China's new growth model supported by multiple pillars will fully exert its force.
Q: How can more proactive fiscal policy continue to be implemented in 2026? In 2025, a significant amount of funds were used for debt resolution, correspondingly reducing funds available for project construction. How should the needs of debt resolution and project construction be balanced in 2026? Liu Yuanchun: The more proactive fiscal policy in 2025 was an important support for promoting stable economic growth. The reason for the slowdown in infrastructure investment growth during the year lies in the weaker-than-expected local fiscal situation. On one hand, the adjustment in the real estate market led to a decrease in local government land transfer revenues; on the other hand, the amount of accumulated hidden debts, including arrears to enterprises, was higher than expected.
Therefore, the more proactive fiscal policy in 2026 should pay more attention to solving the problem of local fiscal difficulties. Local governments are an important engine for stabilizing growth. Focusing on resolving local fiscal difficulties will further enhance the effectiveness of fiscal expenditure.
2026 will also see intensified efforts to clear arrears to enterprises, which will significantly improve corporate liquidity, enhance corporate operational capabilities, help resolve local debt risks, and further improve economic circulation.
It is expected that the deficit-to-GDP ratio will be maintained at around 4% in 2026. Ultra-long-term special government bonds and local government special bonds will also maintain considerable intensity, and the scale of fiscal expenditure will be further expanded. On the basis of maintaining宽松 in aggregate, 2026 will allocate fiscal funds to priority areas, including expanding domestic demand, supporting technological innovation, and improving people's livelihoods, continuously optimizing the expenditure structure.
Q: The Central Economic Work Conference pointed out that it is necessary to adhere to both policy support and reform and innovation. Which reform items need to be prioritized in 2026? Liu Yuanchun: First, regarding the institutional layout for a nationally unified market, focus on removing blockages and obstacles hindering its construction. This includes adjusting the traditional model where local governments rush into action en masse, standardizing local governments' economic promotion behaviors, eliminating local protectionism and market segmentation, and developing new quality productive forces according to local conditions.
Second, unleash the vitality of micro-entities. In recent years, the Private Economy Promotion Law has been accelerated, reforms of state-owned assets and enterprises have been deepened orderly, and measures to optimize the business environment, such as protecting property rights, have been continuously introduced. The key to further transmitting these measures to the micro level is to improve corporate profitability. Therefore, it is essential to deeply address "involution-style" competition, promote the improvement of profitability for leading enterprises and private enterprises, thereby forming new incentive effects, which in turn will boost market confidence and unleash the vitality of micro-entities.
Third, enhance保障 for key areas of people's livelihoods. Emphasize the close integration of investing in physical capital and investing in human capital, improve the social security system, and optimize income distribution reforms. Focusing on continuously expanding the middle-income group and promoting the all-round development of people will help expand domestic demand, enhance the endogenous dynamism of the economy, and yield very good results.