In December, China’s macroeconomic data showed growth inclined towards exports and industrial production. Retail sales and investment showed a weaker trend.
Growth Projection for 2026
China’s growth is expected to slow to 4.7% in 2026, influenced by US tariffs and a higher export base. Global technology demand may however offer some positive influence.
The 7-day reverse repo rate remained unchanged recently, and banks’ loan prime rate fixings are expected to remain stable. There is an assumption for a 10-basis-point policy rate reduction and a 50-basis-point reserve requirement ratio cut within the year.
This would adjust the 7-day reverse repo, 1-year LPR, and 5-year LPR to 1.30%, 2.90%, and 3.40% respectively. The National People’s Congress starting in March will set the 2026 growth target. The expectation is an ‘around 5%’ target.
Market Strategies and Monetary Policy
We see a clear divergence in the Chinese economy, with fourth-quarter growth moderating to 4.5% year-on-year, bringing the full year 2025 growth to 5.0%. Recent data confirms this split, as December’s industrial production rose a solid 6.8%, while retail sales growth disappointed at just 2.9%. This suggests that strategies favoring industrial and export-oriented sectors over domestic consumer-facing ones may continue to outperform in the near term.
The weakness in domestic demand stems heavily from the ongoing property crisis, which remains a significant drag on investment. Looking back at 2025, we saw property investment contract by 9.6%, marking the third consecutive year of decline and weighing heavily on sentiment. This persistent weakness in gross capital formation makes broad-based long positions on Chinese equity indices like the CSI 300 or Hang Seng China Enterprises Index appear risky.
