China Outlook 2026

China enters 2026 having navigated another year of uneven growth in 2025, marked by resilient exports, persistent property weakness and cautious domestic demand. Asset managers broadly agree that policymakers succeeded in preventing a sharper slowdown, but without delivering a decisive reacceleration. 

AllianceBernstein describes China as being in a “gradual economic slowdown,” noting that growth in 2025 was supported by redirecting exports away from the US toward Asia, Europe and South America. However, the firm highlights that the Chinese economy faces a bigger challenge—weak domestic demand. “Barring a dramatic fiscal stimulus package, it’s hard to envision that headwind shifting in 2026. Sluggish domestic consumption will likely keep prices low, so China seems in greater danger of deflation than of inflation running too hot,” the asset manager writes in its 2026 Outlook. 

Growth estimates for 2026 hover around 4.5% with expectations of limited stimulus. 

Vanguard’s Senior economist Grant Feng warns that “a soft labor market, a prolonged property downturn, and fragile private sector sentiment remain significant and will require incremental and targeted support,” adding that policy measures should only stabilise demand “modestly” into early 2026. 

Aberdeen Investments similarly frames 2026 as a year of “strategic adaptation,” driven by technological self-reliance and selective reflation rather than broad-based stimulus, as China balances domestic restructuring with global volatility. 

China Equity Market Outlook

China’s equity markets stabilised and partially recovered in 2025, supported by targeted policy easing, improved sentiment toward technology and manufacturing, and renewed attention on shareholder returns. However, performance remained volatile, reflecting weak domestic confidence, earnings downgrades and ongoing uncertainty around the property sector. 

Julius Baer characterises the backdrop as a lingering “balance sheet recession” following the real estate downturn, with households prioritising savings over consumption. Against this backdrop, policymakers increasingly turned toward equity markets as part of the reflation toolkit. “Recent evidence suggests Chinese policymakers now recognise that one of the most effective ways to reflate household balance sheets damaged by the prolonged downturn in the real estate sector is to engineer a managed and sustainable equity bull market,” Julius Baer notes in their 2026 Investment Outlook, pointing to higher dividends, buybacks and efforts to channel savings into equities as confidence-building measures. 

Looking into 2026, asset managers broadly see opportunity, but not a broad-based rally. Matthews Asia argues that Chinese equities still offer compelling value, with earnings growth expected to recover across parts of the market. “We see significant value in China’s equity market,” the Asia-focused asset manager wrote in November, highlighting financials, materials, industrials and export-related supply chains, alongside innovative companies in AI infrastructure and biotech. 

A unifying theme across equity outlooks is the role of artificial intelligence as a structural, policy-aligned growth driver, rather than a catalyst for a broad market re-rating. As AI adoption spreads across manufacturing, logistics, power, healthcare and services, asset managers increasingly view China’s opportunity in application and scale, not only in frontier innovation. “As AI adoption accelerates across industries, China is well-positioned to capture long-term value through both innovation and application,” Invesco notes, adding that this creates “a compelling opportunity for investors to tap into China’s long-term potential across AI innovation and application.” 

At the same time, selectivity remains critical. State Street Investment Management notes that while AI investment and shareholder return initiatives provide tailwinds, “equity valuations are above the five-year average and EPS has been revised lower,” leaving sentiment highly sensitive to policy and macro developments.  

“For global investors, Chinese equities offer diversification benefits due to their relatively low correlation with other major markets. However, a selective approach is warranted amid uncertainty around the sustainability of earnings growth, the degree of policy dependence, and the concentration of market leadership in a few sectors,” says Lori Heinel, State Street’s Global Chief Investment Officer.