Key points.
- Given the strong export momentum, coupled with new fiscal stimulus measures, the Chinese economy is expected to grow by 4.3% this year, a level higher than our previous scenario.
- We anticipate the yuan will continue to strengthen in 2026, but at a moderate pace. This appreciation should prevent the risk of renewed tensions with China’s trading partners.
- Chinese investments in AI and computing power are already benefiting from the trade truce with the United States, thus fostering the development of more efficient AI models.
- Our positive view of China anchors the outlook for emerging economies and assets. We particularly identify opportunities in Chinese technology companies.
China’s record trade surplus is contributing to its economic growth, while simultaneously exacerbating internal imbalances and international tensions. Although the evolving geopolitical situation remains a significant risk, we anticipate an improved outlook for the Chinese economy and assets in 2026.
Despite rising US tariffs, China recorded a trade surplus of USD 1.2 trillion in 2025. The increasing share of its exports to Southeast Asian countries, largely to circumvent US tariffs, along with the competitiveness of its technologies and prices, explains this remarkable resilience. The more favorable export dynamics, combined with our scenario of stronger government support, lead us to raise our forecast for the country’s real GDP growth to 4.3% in 2026. This figure represents a slowdown compared to the 5.0% recorded in 2025, but remains consistent with Beijing’s medium-term growth outlook.
We have raised our forecast for China’s real GDP growth to 4.3% in 2026
Rebound in domestic demand
The low level of Chinese inflation clearly illustrates the contrast between robust trade momentum and persistently weak domestic demand. Growth in retail sales and fixed-asset investment slowed sharply in the second half of 2025, as local governments made cautious use of the proceeds from their bond issuances. In response, the Chinese authorities have pledged to support domestic demand more effectively. We anticipate additional fiscal stimulus measures of around 1% of GDP throughout 2026. According to recent policy rhetoric, this support would include measures to subsidize consumption, enhance income transfers to households, and stabilize investment, with the central government playing a greater role in projects. This more proactive fiscal policy should mitigate deflationary pressures; for this year, we forecast average consumer price inflation of 1%, compared to around 0.1% in 2025.
Robust global demand, the one-year trade truce with the United States, and expansionary fiscal policies in major economies will continue to support Chinese exports this year. That said, we anticipate a moderate slowdown in export growth in 2026, amid a government campaign to eliminate excess production capacity and raise producer prices, coupled with a proliferation of measures implemented by other countries to curb cheap Chinese imports. Our base-case scenario also still assumes the application of US tariffs to Chinese exports. This is because, even if the Supreme Court invalidates the tariffs imposed under the International Emergency Economic Powers Act (IEEPA) , they could be reintroduced through other mechanisms.
Beijing’s recent move toward a stronger yuan will slightly dampen exports and somewhat limit the monetary policy response. Therefore, we anticipate moderate monetary easing from the People’s Bank of China, with a single interest rate cut in 2026. China’s preference for fiscal rather than monetary support allows policymakers to maintain tight control over the yuan’s fluctuations. An appreciation of the currency should help the authorities mitigate the risk of renewed tensions with their trading partners: our 12-month forecast for the USD/CNY pair is 6.80.
China’s choice to prioritize fiscal rather than monetary support allows policymakers to continue to closely control fluctuations in the yuan.
Indeed, where clear advantages remain, China should continue its pursuit of opportunistic trade agreements and conciliatory measures. On January 12, Chinese authorities signed a framework agreement with the European Union to resolve a dispute concerning electric vehicle imports. And on January 16, they reached an arrangement with Canada to lower import tariffs.
President Xi Jinping will likely seek to avoid any escalation of trade tensions during his upcoming meeting with US President Donald Trump, scheduled for April. In November 2025, the two countries agreed to a one-year trade truce, with China easing restrictions on its rare earth exports in exchange for a reduction in US export controls and sanctions. Given their economic interdependence , neither side has an interest in reigniting tensions in 2026.
A new year of innovation in the fields of AI and clean technologies
This period of relative calm in trade relations supports China’s outlook. Its purchases of higher-performance semiconductors will likely facilitate the development of new computing capacity and data centers in 2026, which should boost investment and private sector growth after the decline in fixed asset investment in 2025. We anticipate a substantial increase in China’s share of global AI computing capacity production in 2026. The country already produces roughly twice as much electricity as the United States at nearly half the cost, giving it a crucial advantage in the AI race and a partial counterweight to the dominance of US tech giants in this field.
This period of calm in trade relations supports China’s prospects
The recent, and less predictable, shift in US foreign policy—including threats of tariffs on NATO allies around Greenland and military interventions in Venezuela—could also accelerate China’s energy security efforts and boost its renewable energy production. China’s strategic priority is to reduce its dependence on hydrocarbon imports from US spheres of influence. Its vulnerability in this area has been highlighted by the unrest in Venezuela and Iran, which were among the country’s main oil and gas exporters. China’s stated commitment to achieving carbon neutrality is therefore a credible pledge that should bear fruit in the near future, and its push for electrification underscores the urgency of this endeavor.
China’s economic stability benefits emerging markets.
Despite geopolitical tensions, China’s economic stability by 2026 should help support growth in other Asian economies, reinforcing our bias toward emerging market assets. Within our portfolios, we currently overweight emerging market equities, which offer higher earnings growth at more reasonable valuations than developed markets, as well as emerging market hard currency bonds. The latter offer attractive yields with better credit quality than corporate bonds with similar yields.
China’s strategic priority is to reduce its dependence on hydrocarbon imports from areas of American influence.
Preference for Chinese stocks
These favorable prospects for China are a major driver of our overweight position in emerging market equities. Chinese stocks now appear to offer opportunities as the country prepares for the adoption of its new five-year plan in March. Their attractive yields and limited investor positioning should lead to an influx of domestic and foreign capital, as well as an expansion of valuation multiples. We also anticipate earnings growth accelerating to 9% in 2026, compared to 3% in 2025.
Among Chinese stocks, we particularly see opportunities in technology companies.
Among Chinese stocks, we see particular opportunities in technology companies, which are benefiting from increased power generation capacity and government efforts to achieve technological self-sufficiency. Chinese technology companies are still trading at a significant discount to their US counterparts, while exhibiting higher earnings growth and faster adoption of advanced technologies. This makes them one of our top convictions for 2026 .
