Key facts
- China's Politburo has signaled a cautious approach to economic support.
- The government is calling for more proactive tax and spending policies.
- Broad measures to address weak consumer spending were not endorsed.
- Strong exports are offsetting domestic economic weaknesses.
- Retail sales growth slowed significantly in December.
- Policymakers appear unconcerned about the current economic slowdown.
China's ruling Politburo has indicated a cautious stance on economic support, advocating for more proactive fiscal policies like tax and spending measures but stopping short of endorsing broad actions to combat weak consumer demand. This measured approach comes as strong export performance continues to offset domestic economic challenges, leading policymakers to express little concern about the current slowdown.
Consumer demand remains a significant concern, with retail sales growth slowing to just 0.9 percent in December. While a government trade-in program provided a boost early in 2025, it had suppressed spending on big-ticket items in the latter half of the previous year. Factors such as youth unemployment and falling house prices are also negatively impacting consumer sentiment.
Despite domestic weaknesses, China's exports have shown resilience, growing by 6.6 percent in USD terms in December and 5.5 percent overall for 2025. This growth was achieved even as exports to the U.S. declined by 19.8 percent, bolstered by significant increases in sales to ASEAN markets (13.4 percent) and the EU (8.5 percent).
Policymakers have maintained a restrained approach to stimulus, likely due to the reliable performance of exports. The Central Economic Work Conference in December identified reversing investment decline as a priority for 2026, with a focus on strategic sectors. To this end, China launched a national venture capital fund aiming to mobilize CNY 1 trillion to support companies in emerging industries. The NDRC has highlighted new materials, aerospace, quantum technology, and biomanufacturing as key growth drivers.
While the NDRC has stated efforts are underway to increase incomes, specific details remain undisclosed. The central bank plans to maintain a moderately loose monetary policy, which may offer some relief to households with existing debt but is unlikely to spur significant new borrowing for consumption. The consumer goods trade-in program will continue in 2026 with potentially reduced subsidies.
External pressure from other countries regarding China's trade imbalance could potentially trigger more substantial policy shifts. However, current tariffs and trade barriers have proven insufficient to significantly constrain Chinese industries. Without such external pressure, a significant domestic shock, such as a continued investment plunge, falling house prices, and rising unemployment, might be necessary to compel Beijing to direct more resources towards households.