Looking ahead to 2026, visibility in the economic environment has significantly improved. This stems partly from the substantial short-term relief in tariff pressures following the U.S.-China agreement, and partly from the sustained macro policy support among major global economies.
In 2025, the global economy operated amid volatility, with macro uncertainties concentrated in unprecedented tariff shocks. Meanwhile, policy coordination converged on rare post-financial-crisis fiscal and monetary easing (expectations). For 2026, the economic outlook appears brighter—tariff tensions have eased considerably after the U.S.-China deal, while major economies continue their supportive policies.
Despite lingering pressures from a bottoming property cycle and industrial capacity adjustments, China's economy in 2026 will likely follow two clear trends: supply-demand rebalancing and gradual reflation. Structural trade diversification may persist post-tariff de-escalation, while "anti-involution" policies could gradually transmit supply-side reforms and price improvements from upstream to downstream sectors. Technological self-reliance and industrial modernization will further solidify the role of new productive forces.
For financial investments, the diversion effect from declining yields in fixed-income-like assets persists. However, in a broadly accommodative liquidity environment, risks from short-term overvaluation remain manageable. Against this backdrop, the scarcity value of safe-haven assets, the necessity of diversified allocations, and the recovery potential of undervalued assets may dominate investment themes. A balanced portfolio strategy is recommended—increasing exposure to short-to-medium duration bonds and Chinese equities, maintaining gold holdings, and reducing USD currency exposure.
**Global Economy: Beyond the Tariff Peak, Fiscal and Monetary Easing Persists** The IMF's October projections suggest sluggish but uneven global growth in 2026, with GDP expansion slowing from 3.3% (2024) to 3.1% (2026). Advanced economies may grow at 1.6%, while emerging markets slightly exceed 4%. Key risks include policy uncertainty, negative supply shocks, AI investment bubbles, and fiscal-financial vulnerabilities. Resilience factors include export diversification, fiscal stimulus, and global liquidity easing.
The actual 2026 trajectory could outperform these baseline estimates. First, the U.S.-China tariff truce (24% rates suspended for another year) has alleviated the biggest 2025 uncertainty, with low odds of re-escalation. IMF research indicates tariff cuts and reduced trade policy uncertainty provide economic boosts—the former more impactful for China, the latter globally. Second, the global monetary easing cycle continues alongside elevated fiscal deficits. Major central banks, including the Fed (resuming rate cuts since September), are responding to growth pressures. High deficit ratios are expected due to policies like the U.S. "Great Beauty Act," China’s domestic demand support, Europe’s defense spending hikes, and Japan’s supplementary budget.
However, divergent inflation trends—sticky inflation in developed economies (from tariffs and immigration policies) versus China’s structural disinflation—may complicate this outlook.
**China’s Economy: Rebalancing and Gradual Reflation Take Center Stage** Long-term strategies emphasize dual circulation—strengthening domestic demand while diversifying external trade. The 15th Five-Year Plan prioritizes consumption upgrades, employment-income-expectation stabilization, and tech/industrial chain advancements. Short-term fundamentals remain stable, with supply outperforming demand and external demand stronger than domestic.
The "anti-involution" policy—broader in scope (spanning steel, autos, solar, e-commerce, logistics) and more private-sector-involved than the 2015 supply-side reforms—is gradually improving prices. Yet, persistent property price declines and low capacity utilization continue to dampen demand and corporate profits. Incremental 2026 policies may focus on property market stabilization, excess capacity clearance, and supply-demand realignment to foster gradual price recovery. By late 2026-2027, the economy could exit quasi-deflation.
**Investment Strategy: Diversification Overweights Barbell Approach**
With deposit/insurance/wealth management yields plunging to 0.95-2.5%, fixed-income-like assets face pressure. Since May 2025, asset correlations (e.g., Bitcoin,
For 2026, key themes include: - **Bonds**: Chinese bonds offer tactical opportunities, but yield declines may be limited. Short-to-medium duration bonds are preferred amid a flattening curve. U.S. Treasuries may see bull steepening, constrained by fiscal concerns and inflation. - **Equities**: Chinese stocks retain upside. Valuations (dividend/risk premiums vs. bonds) and relative underperformance (2025) suggest catch-up potential, aided by global rebalancing and domestic inflows. Preferred sectors: tech (AI/gaming), new consumption (innovation/globalization), "anti-involution" beneficiaries (materials/energy), and financials/dividends. - **FX**: The USD index, after a 2025 rebound, may resume its downtrend (historically 30-40% declines over 6-7 years), potentially driving USD/CNY below 7. - **Commodities**: Broadly bullish, with gold poised to breach $4,500/oz post-consolidation. Fed rate cuts and U.S. economic relative decline could fuel long-term gains.
*Charts referenced depict China’s export diversification post-2018, short-duration bond fund outperformance in low-rate/high-volatility regimes, and heightened 2025 asset correlation trends.*