Exports set to continue powering China’s economy in 2026: Analyst

Key Concepts

• China's GDP Growth: Analysis of Q4 and full-year 2025 GDP performance, with a focus on drivers and sustainability.
• Export-Led Growth: The resurgence of exports as a primary engine for China’s economic growth, contrasting with weakening domestic demand.
• 15th Five-Year Plan (2026-2030): Significance of 2026 as the starting year and the associated economic and political pressures.
• Productivity Growth: The increasing importance of productivity as a key driver of economic growth, compensating for demographic and investment challenges.
• Rare Earth Dominance: China’s strategic advantage and potential vulnerabilities associated with its dominance in rare earth exports.
• Structural Imbalances: Weaknesses in domestic consumption and investment, and the ending of an overleveraging growth model.

China's Economic Outlook: A Deep Dive into 2026 and Beyond

I. 2025 GDP Performance & Growth Drivers

China’s Q4 and full-year 2025 GDP figures met expectations, with Q4 actually exceeding forecasts from many agencies. This demonstrates the Chinese government’s ability to maintain economic stability despite both internal and external pressures, and momentum is expected to continue into 2026. However, the growth is nuanced. A deceleration in infrastructure and manufacturing investment was observed in Q4. Despite trade tensions impacting Q2 and Q3 of 2025, Chinese manufacturers, having survived the initial tariff impacts (“liberation day tariff episode”), possessed substantial order backlogs. This led to outperformance in the export sector during Q3 and Q4. Dan Wang highlights a consistent underestimation of China’s export strength and supply chain resilience over the past four years.

II. Shift to Export-Led Growth & Domestic Weaknesses

A key argument presented is that exports will be the primary growth engine for China in 2026, rather than domestic demand. This is due to a “fundamental weakness” in domestic consumption and investment. The previous growth model, reliant on overleveraging, has effectively ended. This reliance on exports necessitates increased access to overseas markets, particularly in developed economies like Europe and the US.

III. 2026: A Pivotal Year & Economic Targets

2026 is a critical year for China, marking the beginning of the 15th Five-Year Plan and preceding the 21st Party Congress. Consequently, both economic and social targets must be met. The first half of 2026 will require particularly strong economic performance, with potential for deceleration in the second half, contingent on data and potentially offset by “substantial” fiscal responses in case of a major slowdown. The housing sector remains a significant drag on the economy, with declining prices in Tier 1 cities. However, the central government has signaled no intention of bailing out the real estate sector, instead prioritizing productivity growth.

IV. The Role of Productivity & Growth Factors

Since 2021, China’s economic growth has been driven by labor, capital, and technology. However, China has experienced demographic decline since 2021, and investment growth has slowed, even contracting in 2025. Therefore, the 5% growth observed in 2025 was “almost entirely” attributable to productivity growth – a “substantial milestone.” The 15th Five-Year Plan will see a doubling down of investment in the high-tech sector, signifying a shift towards efficiency improvements as the primary driver of future economic growth.

V. Rare Earth Exports & Geopolitical Risks

China’s dominance in rare earth exports is a significant “choke point” in trade negotiations with the US, Japan, and other economies. This leverage has proven effective, creating dependence on China’s supply chain. However, escalating tensions with Japan and Europe are bringing this issue to the forefront. Industries reliant on Chinese rare earths are expected to lobby their governments for alternative supply chain development, potentially creating a “main vulnerability” for China within five to ten years. China must proactively develop alternative supply chain advantages to mitigate this risk.

VI. Data & Statistics Mentioned

• 2025 GDP Growth: Met expectations, with Q4 exceeding forecasts.
• Investment Slowdown: Deceleration of investment in infrastructure and manufacturing in Q4 2025.
• Demographic Decline: China has experienced demographic decline since 2021.
• Investment Contraction: Investment growth contracted in 2025.
• 5% Growth (2025): Almost entirely driven by productivity growth.

VII. Notable Quotes

• Dan Wang: “This is a clear message that Chinese government is able to keep the economy on track despite of the internal and external challenges.”
• Dan Wang: “This 5% growth in 25 was almost entirely coming from the productivity productivity growth and this is quite substantial milestone.”
• Dan Wang: “rare earth is China's most important choke point when it comes to trade negotiation with the US and also with the trade tension when it comes to trade tensions with Japan and other economies.”

Synthesis/Conclusion

China’s economic outlook for 2026 and beyond is characterized by a transition. While recent GDP figures are positive, the growth model is shifting from investment-led to export-led, driven by increasing productivity. The 15th Five-Year Plan is crucial, demanding strong economic performance to meet political objectives. However, vulnerabilities exist, particularly regarding domestic demand, the housing sector, and reliance on rare earth dominance, which could become a strategic weakness in the long term. China’s success will depend on its ability to navigate these challenges and foster sustainable, productivity-driven growth while diversifying its economic advantages.