Westpac: China must shift to proactive policy in 2026 to sustain growth

China achieved 5% growth in 2025 on export strength, but analysts warn that sustaining momentum in 2026 will require a proactive shift toward boosting domestic demand and stabilising housing.Summary:China met its 5.0% GDP growth target in 2025, supported heavily by net exports.Export gains to Asia, Europe and Latin America offset US trade pressures.Manufacturing investment held up, especially in EVs, electronics and infrastructure.Property investment fell sharply again, domestic demand remains weak.The note argues Beijing must adopt a more proactive pro-growth stance in 2026 to prevent structural slowdown.China’s economy hit its official 5.0% growth target in 2025, but a new research note argues that meeting expectations last year only sharpens the policy challenge for 2026, and raises the urgency for a decisive shift toward domestic demand support.According to the analysis, the standout feature of 2025 was the resilience of Chinese industry in the face of US trade policy. Rather than suffering material damage, exporters redirected goods aggressively to alternative markets. Trade surpluses with Asia, Europe and Latin America expanded strongly, more than offsetting lost US opportunities. The authors also highlight the rapid expansion of Chinese-owned production facilities abroad, arguing that scale, lower costs and stronger global integration are creating durable earnings and revenue dividends for firms and the state.Domestically, the picture was more mixed. Overall fixed asset investment fell 3.8% in 2025, yet manufacturing investment still eked out growth despite tariff uncertainty and official pressure against unprofitable production. High-tech sectors such as electronics and chemicals remain at elevated investment levels following the 2020–2024 boom. The automotive sector, particularly electric vehicles, continues to expand capacity to meet global demand. China’s power generation and grid infrastructure buildout also stands in contrast to slower Western investment trends.The concern, the note argues, is sustainability. Net exports and associated industrial investment now represent a larger share of the economy than before the pandemic. With China’s share of global production already near record highs, that growth engine cannot keep accelerating indefinitely. To sustain growth near 5% in 2026 and beyond, policymakers will need to engineer a shift toward stronger household consumption and a stabilisation in housing.Property investment fell another 17% in 2025, and consumer sentiment remains cautious. The authors argue that the political hesitation to stimulate housing and household demand has largely run its course and that delaying action risks embedding a structurally weaker growth trend.A key warning is that local government-led investment cannot sustain expansion on its own. Without a revival in private consumption and related business investment, land sales and tax revenues will remain constrained, limiting regional fiscal capacity.The note ends on a constructive point: Chinese households retain high liquid savings and real income growth has been resilient. With property and land prices deeply depressed, a credible central government stimulus could unlock pent-up demand quickly and broaden activity across sectors and regions.The central message is clear: the growth pulse now hinges on policy resolve.
This article was written by Eamonn Sheridan at investinglive.com.

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