Outlook of macro economy and industries in 2026

Economy

Year of the horse: settling into stride while regaining balance

The year 2025 proved far better for the Chinese economy than most had expected. The growth target of “around 5%” was achieved without heavy reliance on fiscal stimulus or monetary easing. The Xi–Trump meeting in Busan on October 30, 2025, held on the sidelines of APEC Korea 2025, delivered a de-escalation in the trade war. Risky assets, particularly equities, performed strongly. Hong Kong reclaimed its crown as the world’s leading IPO market, while the domestic A-share market surged to a ten-year high. Even long-term interest rates edged higher, signalling a retreat from fears of prolonged stagnation and entrenched non-performing assets.

Yet, for all its strengths, China’s economy remains imbalanced in its growth drivers. Domestic demand is still subdued, weighed down by a struggling property sector and a soft labour market.

Figure 1: Property sector weakness likely to persist in 2026
Source: Wind

Exports, meanwhile, have defied expectations, rising by 5% to 6% in 2025 despite mounting tariffs and export restrictions, including the 100% import duty imposed on Chinese electric vehicles by the US, as well as anticipated tariff increases in Europe and even some emerging economies.

Looking ahead to 2026, we expect economic growth to moderate to around 4.5%. Three factors underpin this outlook. First, the property market downturn is likely to continue working through the system over the next 12 months. Second, the government will press ahead with its “anti-involution” campaign, encouraging consolidation in non-strategic sectors burdened by overcapacity such as steel, cement, and solar panels. In this context, the central government increasingly views a lower growth target as a necessary trade-off to rein in excess supply. Finally, the contribution of net exports to GDP is expected to decline.

Ultimately, China’s economic rebalancing hinges on raising the consumption-to-GDP ratio, a goal explicitly endorsed at October’s Fourth Plenary Session. The key question is how this can be achieved in practice. Expanding trade-in programs—currently concentrated on small household appliances—to cover services such as travel and hospitality would be one logical step. Substantial cuts to mortgage rates could also provide support, particularly if banks face rising foreclosure risks amid falling property prices. More comprehensive support for the residential property market, however, would require a recalibration of the current stance aimed at curbing speculative home purchases.

At the Central Economic Work Conference held from December 10 to 11, 2025, policymakers, for the first time, identified raising household incomes as the most effective way to boost consumption. This marked a clear shift away from earlier approaches that focused primarily on lowering prices, such as through trade-in subsidies, which tend to deliver only short-lived demand effects.

How, then, can incomes be raised? Simply pursuing faster GDP growth may not be the answer, given the “involution” affecting many industries and the declining labor intensity of manufacturing. This places greater emphasis on the service sector as a potential source of income growth. China’s decision on December 18 to separate Hainan from the mainland for customs processing can be seen as part of a broader effort to join the CPTPP and to develop a Hong Kong–style commercial hub. The CPTPP framework is intended to promote liberalization by aligning China more closely with advanced and open market economies.

A broad bailout of the residential property sector nonetheless appears unlikely. The 15th Five-Year Plan prioritizes “moving up the value chain” rather than reviving real estate as a primary growth engine. Instead, policy is likely to focus on targeted measures to strengthen the social safety net, including subsidies for young parents and low-income households. Further easing of housing restrictions—particularly in Beijing and Shanghai, the most sought-after residential markets—also appears likely, following the NDRC’s commitments to remove restrictive measures in both the automotive and housing sectors.

The external environment will further shape policy implementation. Even if the US–China trade truce holds, resistance to Chinese exports is likely to intensify on multiple fronts. The Trump administration’s renegotiation of the USMCA could extend tariffs on Chinese goods across North America. With Mexico imposing 50% tariffs on Chinese goods, similar retaliatory measures may arise elsewhere. Countries with persistent trade deficits with China, including India and Turkey, may impose additional barriers. Even economies that rely heavily on Chinese investment, like Brazil and Thailand, could adopt sector-specific tariffs, particularly on steel.

Such backlash may also be fueled by China’s expanding trade surplus. Options for countering protectionism appear limited, given existing imbalances with Europe and Mexico. While voluntary export restraints—reminiscent of Japan’s experience decades ago—are sometimes cited, the broader point remains that exports are likely to face stronger headwinds in 2026.

Figure 2: China’s trade surplus hit USD 1 trillion by November 2025
Source: Wind

In essence, any shortfall in external demand will need to be offset by stronger domestic demand, particularly through consumer spending. We forecast GDP growth of 4.5% in 2026, underpinned by a more expansionary fiscal policy. We also expect a slightly firmer renminbi as the greenback weakens against the currencies of surplus economies, with China likely to be among the leaders. A stronger currency, however, would amount to a de facto tightening of monetary conditions, making a more forceful fiscal response all the more critical.

Financial Services

Building financial strength under China's high-quality development agenda

China’s 15th Five-Year Plan first proposed "accelerating the building of a strong financial power," signaling a comprehensive strategic upgrade based on the 14th Five-Year Plan and establishing the core development goal of the financial sector during the 15th Five-Year and in the medium- and long-term future. The proposal includes three layers of objectives and implications: a prudent monetary policy and macroprudential management framework, a capital market that promotes coordinated development between investment and financing, and a more optimized financial institutional system. Together, these elements—each aligned with high-quality economic development and the transition from a large financial country to a strong financial power—form the core logic for the high-quality development of the financial industry from 2026 onward.

Downplaying quantitative indicators in favor of economic and financial compatibility

The total financial indicators reflect the intensity of financial support for the real economy. The PBOC’s Q3 2025 Monetary Policy Implementation Report discusses “scientifically viewing total financial indicators” in a dedicated section. During the 14th Five-Year Plan period, the annual growth rates of total social financing (TSF) and the M2 balance were approximately 9–10%, higher than the nominal economic growth rate, indicating strong and effective financial support for the real economy. At present, the balance of RMB loans in China has reached RMB 271 trillion, and the stock of TSF has reached RMB 440 trillion. As the base expands, it is natural that growth rates of total financial aggregates will decline, which is consistent with the economy’s transition from high-speed growth to high-quality development.

Pan Gongsheng, Governor of the PBOC, has repeatedly emphasized “downplaying the focus on quantitative targets.” As loan growth in traditional sectors such as real estate and infrastructure declines, monetary policy will place greater emphasis on price-based regulation, namely, interest-rate cuts and the further marketization of interest rates, to guide the allocation of funds, thereby stimulating consumption and investment. It is expected that the central bank will continue to cut interest rates, with the growth rate of social financing falling below 8.5%, M2 declining to 7.5–8%, and loan growth dropping below 6.5%.

Figure 3: declining growth of China’s total financial volume indicators (%)
Source: PBOC

Coordinated development of investment and financing with the reconstruction of capital flow.

Wu Qing, Chairman of the CSRC, published a article titled Enhancing the Inclusiveness and Adaptability of the Capital Market System in the Study Guide for the Proposal of the 15th Five-Year Plan, proposing to comprehensively promote a new round of capital market reform. Key tasks and measures include actively developing direct financing, enhancing the investment value of listed companies, creating a more attractive institutional environment for long-term capital and investment, expanding the institutional opening-up of capital markets, and strengthening rule of law and investor protection.

The goal of the reform is to make the investment and financing functions of the capital market more coordinated and efficient, thereby driving the restructuring of capital flows. The traditional social financing structure dominated by indirect financing will continue to evolve, with credit, equity, and bond financing channels increasingly substituting for one another and rising or falling at different stages. From January to October 2025, RMB loans accounted for 47% of incremental social financing, while direct financing (including government bonds, corporate bonds, and domestic equity financing by non-financial enterprises) accounted for 45.8%. Compared with the same period in 2024, the former declined by 10.9 percentage points, while the latter increased by 8.3 percentage points, indicating that the share of direct financing continues to rise.

In 2025, the stock market fluctuated at relatively high levels. Against the backdrop of declining deposit interest rates and the weakening investment appeal of the real estate sector, household deposits continued to shift towards wealth management products. By the end of the third quarter, the scale of wealth management products exceeded RMB 32 trillion (up 4.8% quarter on quarter).

Figure 4: direct financing and indirect financing rise and fall（%）
Source: PBOC

A high-quality financial institution system is the cornerstone of building a strong financial power. The 15th Five-Year Plan aims to “optimize the financial institution system and encourage all types of financial institutions to focus on their core businesses, improve governance, and pursue differentiated development.” Financial institutions will increasingly focus on five key financial areas, enabling more efficient allocation of financial resources.

Banks’ interest margins stabilize temporarily amid rising non-performing risks

Credit has shifted from high-speed, scale-driven expansion reliant on real estate and infrastructure toward the five key areas. By the end of September 2025, loans to the technology, green, inclusive, elderly care, and digital economy sectors had increased by 11.8%, 22.9%, 11.2%, 58.2%, and 12.9% year-on-year, respectively, all significantly higher than the overall loan growth rate. During the 15th Five-Year Plan period, the share of loans supporting new quality productive forces and the five key areas is expected to remain elevated.

In the third quarter of 2025, the net interest margin (NIM) of commercial banks stood at 1.42%, stabilizing quarter-on-quarter, which helped net profit growth turn from negative to zero. However, non-performing loans (NPLs) rose simultaneously, with the NPL balance increasing to RMB 3.5 trillion and the NPL ratio rising to 1.52%, while the provision coverage ratio declined. These opposing movements in net interest margins and asset quality highlight the dual challenges currently facing the banking sector of profit compression and rising risk pressure.

In the first half of 2025, the number of rural financial institutions fell by 222 compared with the end of 2024, reflecting a significant acceleration in the reform and restructuring of village and town banks. Participants in this process have expanded from city commercial banks and rural commercial banks to major state-owned banks, with ICBC, ABC, and BoCom successively merging several village and town banks and converting them into direct branches. Village and town banks may gradually exit the historical stage. Such mergers and reorganizations can help commercial banks leverage scale advantages, enhance refined operations and comprehensive risk management capabilities, reduce costs, and stabilize profitability.

Figure 5: banks’ net profits turn positive with interest spreads stabilizing
Source: NFRA

Securities firms to benefit from reforms as the construction of first-class investment banks enters a critical stage

By the end of the first quarter of 2025, the total assets of securities institutions reached RMB 15.3 trillion, accounting for less than 3% of total financial industry assets. Building a strong financial power requires a robust capital market, as well as first-class investment banks and investment institutions to match it, which is one of the key objectives of the new round of reforms.

As CSRC-led reform measures continue to drive active trading in the capital market, the high-quality development of securities firms has entered a critical stage, and strategic consolidation within the industry has further accelerated. In November 2025, CICC announced plans to merge Dongxing Securities and Cinda Securities. Following the merger, the combined entity is expected to join the ranks of securities firms with assets exceeding RMB 1 trillion. Benefiting from deepening reforms, a shift in household asset allocation toward equities, the development of technology and new quality productive forces, and the global expansion of Chinese capital, leading securities firms with international capabilities and comprehensive service advantages are expected to step up cross-border business expansion and cultivate a second growth curve. Some mid-sized securities firms may also achieve leapfrog development through mergers and acquisitions or by leveraging regional strengths. Overall, securities industry revenues are expected to maintain steady and relatively rapid growth.

Accelerating the development of pension finance amid the expansion of pension and health insurance

At the Financial Street Forum in October 2025, Li Yunze, Director of the NFRA, stated that effectively meeting financial demand in areas such as education, sports, culture, and healthcare, and enriching pension and health insurance products, directly aligns with the recent introduction of multiple supporting policies, which is conducive to the development of pension finance.

Health insurance is entering a new stage of development. Relevant policies have clarified development priorities for four major types of health insurance—commercial medical insurance, commercial long-term care insurance, disability income loss insurance, and disease insurance—to better serve the Healthy China strategy. Going forward, the “insurance + health services” model is expected to become the dominant direction, with insurance companies shifting from single-function risk compensation toward the provision of comprehensive health solutions.

At the same time, elderly care finance is being scaled up nationwide. The pilot program for elderly care wealth management products is being expanded across the country. To financially support China’s elderly care industry and promote the development of the silver economy, elderly care wealth management funds will be invested in long-term, high-quality assets aligned with the characteristics of elderly care, including products with maturities of five years and over ten years. This marks the entry of elderly care finance into a stage of large-scale development.

Energy

The energy transition enters a new phase of systemic restructuring and integration

China has built the world’s largest clean-energy system. By the first half of 2025, installed renewable capacity had reached 2159 GW, accounting for 59.2% of domestic power capacity and around 45% of global renewable installations. Clean energy now forms the backbone of China’s power supply. However, scale alone does not guarantee quality. Intermittency, grid resilience, absorption capacity and alignment with industrial demand are becoming binding constraints.

Looking to 2026 and the 15th Five-Year Plan period, China’s energy transition is moving beyond an emphasis on expansion. It is entering a phase defined by system coordination, structural optimization and closer integration with industry. By redefining the role of traditional energy, upgrading new-energy capabilities and opening up opportunities driven by new technologies and applications, this shift is reshaping the entire energy sector.

Repositioning fossil energy and the rise of advanced materials

Fossil energy is not retreating but being repositioned within a changing system. As geopolitical uncertainty grows and globalisation slows, energy and critical mineral supply security has become a core national concern. In this context, fossil fuels will continue to act as a stabilising anchor, supporting system reliability, cushioning shocks, and ensuring an orderly transition.

Investment in upstream oil and gas, pipelines, and storage infrastructure is therefore likely to increase. Regional cooperation initiatives, such as the Belt and Road, will also continue to expand access to overseas resources.

At the same time, the value of fossil resources is shifting from fuels toward industrial feedstocks and materials. Rapid growth in semiconductors, new energy technologies, and high-end equipment manufacturing is driving demand for fine chemicals, functional materials, and green advanced materials. Advanced chemical materials are thus emerging as a new growth engine for traditional energy industries.

Supported by integrated supply chains, strong engineering capabilities and a large domestic market, China is accelerating its rise as a global production hub for advanced chemical materials. Market size is projected to grow from about RMB 1.18 trillion in 2024 to RMB 1.6 trillion by 2027, making it one of the fastest-growing segments within the traditional energy system.

Figure 6: Key segments of the advanced chemical materials
Source: CCID, Deloitte Research

Clean energy shifts from expansion to system integration

By September 2025, China’s combined wind and solar capacity had reached 1708 GW. While short-term returns may fluctuate, China’s updated Nationally Determined Contribution, which target 3600 GW by 2035, anchors long-term growth expectations.

Future expansion will depend less on added capacity and more on system security and effective integration. Strengthening grid resilience is therefore becoming a priority, driving large-scale deployment of new-type energy storage, faster development of stable baseload power such as nuclear energy, and continued investment in transmission infrastructure.

Against this backdrop, the renewable-energy sector is entering a new cycle of source–grid–load–storage integration, shifting from engineering-led expansion to operations-driven growth. Developers will compete increasingly on operational efficiency rather than installed capacity, relying on storage, hydrogen coupling and other flexible solutions to expand absorption. Equipment manufacturers, meanwhile, are moving beyond cost competition towards differentiation based on efficiency, system integration, carbon performance and lifecycle services.

Figure 7: Wind and solar installed capacity trends
Source: NEA, Deloitte Research

Zero-carbon industrial parks as testing ground for energy-industry integration

Zero-carbon industrial parks are emerging as a key platform for shifting the energy transition from a power-system challenge toward an industrial-system transformation. As concentrated hubs of energy use and industrial activity, they will play a central role during the 15th Five-Year Plan period in industrial decarbonization and in testing new mechanisms for renewable-energy absorption. Successful models are readily replicable.

China has more than 15,000 industrial parks, accounting for about 40% of national energy consumption, making decarbonization unavoidable. Guided by the goal of building 100 national-level zero-carbon parks, and supported by policies across more than 30 provinces and municipalities, transformation efforts will focus on coordinated supply and demand. Renewable energy will be deployed at scale within parks, while energy and carbon-cost signals will steer energy-intensive industries towards regions rich in renewable resources.

With over 40% of global new-type energy-storage capacity already installed, China has the technical base to support high shares of green power while maintaining stability. Integrated energy services in zero-carbon parks are therefore evolving from isolated retrofits into end-to-end solutions covering energy planning, renewable deployment, storage, charging infrastructure and carbon management. Digital control, storage monetization, carbon trading and green finance are turning emissions reduction into a bankable asset. As international carbon rules take hold, these parks are also becoming platforms for certification and for exporting solutions abroad.

Computing power drives new demand and new energy-digital models

AI now permeates the energy value chain, improving forecasting, maintenance and materials R&D. The more significant shift, however, is that computing infrastructure itself is becoming the fastest-growing and most demanding source of electricity demand.

The growing demands of data centers for reliability, stability, and decarbonization mean they are no longer conventional electricity loads, but a force reshaping the energy system. In 2023, they consumed 150 billion kWh, or 1.6% of national electricity demand; by 2030, consumption is expected to increase by two to five times. Yet data center construction is outpacing grid expansion, placing growing strain on conventional supply models.

In response, source–grid–load–storage–compute integration is likely to accelerate. By deploying distributed solar, energy storage and potentially small modular reactors (SMRs), data centers can secure power supply while generating additional revenue through peer-to-peer sales and demand response. These configurations are giving rise to premium services such as zero-carbon computing, opening new pathways to monetize green energy.

During the 15th Five-Year Plan period, the defining feature of China’s energy sector will be integration—across production, dispatch and consumption; between physical assets and data flows; and between the energy system and the wider industrial ecosystem. Companies that pair technical depth with ecosystem-building capabilities will be best positioned to create value in the next phase of the energy transition.

Technology, Media & Telecommunications

From achieving breakthrough to pioneering new sectors

Reflecting on 2025, the global TMT sector entered a new phase defined by accelerated technological advancement and a pronounced shift toward value realization. Key developments included the transition of artificial intelligence from disruptive innovation to scalable deployment, the rapid expansion of the generative AI user base, and the industrial exploration of frontier fields such as embodied intelligence. Industry priorities have evolved from expectation-driven narratives to a focus on tangible commercialization and ecosystem integration. Looking forward to 2026, these trends are anticipated to further deepen. China is expected to sustain its leadership in R&D investment, particularly in foundational sciences and strategic emerging industries. This commitment is likely to propel sectors such as artificial intelligence, semiconductors, and satellite internet toward scalable commercial adoption, thereby reinforcing the country's pivotal role in shaping the global technology landscape. Nine key trends are projected to define developments in China’s TMT sector in the coming years.

1. R&D investment tilts toward foundational domains and strategic emerging industries

In 2024, China invested approximately RMB 2.7 trillion in strategic emerging industries, marking a 21.8% year-on-year increase. The 14th Five-Year Plan sets a target for basic research funding to account for over 8% of total R&D expenditure by 2025, with potential growth exceeding 10% during the 15th Five-Year Plan period, gradually approaching levels seen in the US (16.2%) and Japan (12.5%). Against a backdrop of heightening US-China tech competition, R&D investment in strategic emerging sectors such as semiconductors, artificial intelligence, quantum communication, and satellite internet is accelerating.

2. Substantial growth in user base for generative AI

The user base for generative AI is projected to expand significantly by 2026, driven primarily by existing applications integrating generative AI capabilities. Generative AI is gradually being integrated into daily life across diverse demographic groups in China, with active exploration and implementation across sectors including agriculture, industrial manufacturing, and scientific research. As of June 2025, China’s generative AI user base reached 515 million, a surge of 266 million from December 2024, doubling in just six months and achieving a penetration rate of 36.5%.

3. Acceleration of AI infrastructure development

China is significantly accelerating the construction of artificial intelligence infrastructure, prioritizing computing power as a core component of new-type infrastructure and strategic productivity within national development priorities. By the end of 2025, China’s intelligent computing capacity is projected to reach 1,037.3 EFlops, marking a year-on-year increase of over 40% and maintaining global leadership. In response to domestic and international technological competition and industrial upgrading demands, China is shifting from scale expansion to a balanced focus on systemic construction, optimized scheduling, and independent control. This transition is driven by coordinated advancements in computing networks, data centers, domestic chips, and ecosystem platforms, laying a robust foundation for large-scale model training and inference, AI-native applications, and industrial intelligence transformation.

4. Rising standards, intelligence, and industrial integration in data governance and cybersecurity

Over the next few years, China’s data governance and cybersecurity are expected to evolve with several distinct trends:

1) Upgraded regulatory standards: Transitioning from compliance-focused oversight to risk-driven governance across the full data lifecycle, with tiered and domain-specific approaches

2) Intelligent tools: Widespread adoption of technologies such as secure multi-party computation, encrypted computing, data anonymization, and privacy-preserving computation in finance, healthcare, industry, and AI applications, enhancing data usability and trustworthiness

3) Deep industrial integration: Regulatory frameworks will encourage secure, controlled data circulation and cross-departmental, cross-regional collaboration, providing a trusted foundation for emerging industries like AI, big data, and cloud computing

4) Globalization: China’s data governance will align with international compliance requirements while maintaining an independent, controllable technological and standards system.

5. The semiconductor industry to enter a “dual-track” development model

Guided by national strategies to strengthen and supplement industrial chains, China’s semiconductor sector is adopting a "dual-track" development model. Traditional chips continue to underpin core sectors such as automotive electronics, industrial control, and communication infrastructure, ensuring stability across supply chains. At the same time, AI chips are rapidly emerging, driving new ecosystems in data centers, AI training hardware, and intelligent terminals. By 2030, China’s AI chip market is projected to grow 7-9 times from its 2025 baseline of $35-40 billion, outpacing global growth rates. The localization rate of AI chips is expected to rise from 30-40% in 2025 to 60-70% by 2030. Policies, capital investment, and industrial parks are collectively advancing mature processes to meet traditional demands, while rapid progress in emerging applications and high-end chip development has laid the groundwork for future AI, smart vehicles, and high-performance computing applications.

6. Embodied intelligence as the next wave of AI

Embodied intelligence is propelling China toward global leadership in the field. In the first five months of 2025, related investments reached RMB 23 billion, with over 300 enterprises now operating across the industrial chain. China’s embodied intelligence market is projected to approach RMB 1 trillion in 2025, with expectations to expand to RMB 1.55 trillion by 2030, reflecting a compound annual growth rate (CAGR) of approximately 10% from 2025 to 2030.

Figure 8: Size of China’s embodied intelligence market (RMB trillion)
Source: Deloitte Research

On the commercialization front, the sector is transitioning from experimentation to industrial deployment. Automotive manufacturing and logistics warehousing are relatively mature, while services, caregiving, and healthcare are emerging. Nonetheless, challenges remain in technical complexity, reliability, cost, user acceptance, and regulatory safety. Future development will need to be grounded in safety assessments and ethical standards to build a trusted robot economy. Embodied intelligence will continue to drive the upgrading of China’s manufacturing sector and the expansion of services, becoming a key engine of industrial transformation and economic growth.

7. Satellite internet reaches an inflection point for scaled deployment and commercial takeoff

The global satellite internet market surpassed USD 30 billion in 2025, with China’s market expected to exceed RMB 44.7 billion. Satellite internet is becoming a critical component of new infrastructure, and 2026 is expected to mark a pivotal stage of “scaled deployment plus deep integration.” With faster domestic constellation deployment, rapidly declining satellite manufacturing and launch costs, and deeper integration of “satellite + terrestrial mobile networks (5G/future 6G),” China’s connectivity in remote rural areas, oceans, and mining regions will improve significantly. Satellite internet will evolve from a supplementary communication tool into a core connectivity capability for emergency communications, transportation, energy, and shipping. By 2030, China’s satellite internet industry is expected to reach the trillion-yuan scale, opening a more mature commercialization window for operators, equipment vendors, and industry applications.

8. Quantum technology accelerates from basic research toward industrialization

China’s quantum information industry is expected to reach approximately RMB 89.2 billion in 2025, accounting for 37.2% of the global market and ranking among the world’s two largest. Compared with Europe and the U.S., which focus more on quantum computing, chemical simulation, and materials research, China has notable advantages in quantum communication and quantum key distribution. City-level quantum communication networks have been established in multiple regions, and nationwide trials combining quantum communication satellites with ground-based quantum relays are ongoing. Entering 2026, China will gradually explore deeper integration of quantum communications with future 6G space–air–ground integrated networks. Industry research proposes an overall architecture combining “quantum-secure communications + satellite internet + terrestrial mobile networks,” offering higher-level security for financial transactions, energy dispatch, data center interconnection, and government communications. Despite ongoing challenges related to cost, standardization, device reliability, and quantum storage, 2026 will be a critical transition year from research breakthroughs to industrial pilot applications, with finance, government, energy, and telecommunications likely to form the first reusable commercial use cases.

9. 6G enters an intensive experimental phase

Over the past two years, China has launched multiple trials of core 6G technologies, including the launch of satellites for space–ground integration verification and testing of space–air–ground integrated architectures, laying the groundwork for future standard setting. China has made relatively rapid progress in space–air–ground integration, intelligent network orchestration, and ultra-massive MIMO. The industry broadly expects 2026–2028 to be a key window for forming global technical consensus, with commercial deployment anticipated around 2030. As the 6G network architecture becomes clearer, telecom operators, satellite internet companies, AI algorithm providers, and vertical industry players will begin positioning themselves early for next-generation communications infrastructure. 6G is not merely an evolution of communication generations, but a strategic project underpinning future industrial intelligence, networked autonomous driving, digital urban governance, and defense communications upgrades. The year 2026 will be critical for advancing system-level, end-to-end validation.

Government & Public Services

Enhancing policy effectiveness through the integration of existing and new measures

At its December meeting, the Political Bureau of the CPC Central Committee reviewed and set out priorities for economic work in 2026. The meeting underscored the need to implement more proactive and effective macroeconomic policies, strengthen their forward-looking design and targeting, and enhance coordination across policy instruments. It also emphasized expanding domestic demand while improving supply, optimizing incremental resources, and making better use of existing ones. Compared with 2024, the policy orientation has shifted from “pursuing progress while ensuring stability and promoting stability through progress” to “pursuing progress while ensuring stability and improving both quality and effectiveness,” reflecting a clearer focus on policy synergy and execution quality.

Policy coordination is now being elevated from a supporting principle to a core requirement. This is most evident in the interaction between fiscal and monetary policy. A more proactive fiscal stance is expected to play a central role in stabilizing growth and supporting overall social investment, while a moderately accommodative monetary policy will be needed to facilitate government debt restructuring and reduce financing costs associated with debt relief. At the same time, greater emphasis is being placed on aligning short-term regulatory measures with long-term structural reforms. While counter-cyclical policies are strengthened to stabilize near-term growth, structural reform is increasingly positioned as the main lever for accelerating the transition from old growth drivers to new ones.

Government investment to play a stronger catalytic role in driving overall social investment

Since 2025, China has implemented a markedly more proactive fiscal policy. The scale of the broad fiscal deficit, total fiscal expenditure, central government budgetary investment, and transfer payments has all reached record levels, reflecting a significant increase in central government spending. However, the transmission of these measures into real economic activity has been weaker than anticipated. Under mounting fiscal constraints and debt relief pressures, local governments’ capacity and willingness to provide matching funds have declined, while private and social capital participation has also softened. As a result, some projects have been delayed or unable to break ground due to insufficient capital support.

These constraints have weighed on fixed-asset investment growth, particularly in infrastructure. The cumulative year-on-year growth rate of broad infrastructure investment fell sharply from 11.5% in March to 1.5% in October 2025, with only public utility investment maintaining relatively robust momentum. This divergence highlights the limits of fiscal expansion in the absence of stronger policy coordination and more effective mobilization of complementary funding sources.

Figure 9: The cumulative growth of broad national infrastructure investment in 2025 (yoy %)
Source: Wind, China Galaxy Securities Co., Ltd.

In September 2025, new policy-based financial instruments totalling RMB 500 billion were annouced and fully earmarked to supplement capital for government-invested projects. This injection is expected to stabilise government investment and support a moderate rebound in 2026, while also facilitating a shift away from a purely investment-driven growth model toward one that gives equal weight to investment and consumption.

The new instruments are being channelled primarily into the digital economy, artificial intelligence, consumption-related infrastructure, and urban renewal projects, including the construction and upgrading of transportation, energy, and underground pipeline networks. Through leverage and project matching, this RMB 500 billion allocation is expected to drive total project investment of around RMB 7 trillion, significantly strengthening the role of government investment in supporting growth and structural upgrading.

New infrastructure: balancing forward planning with more effective use of existing assets

During the 15th Five-Year Plan period, the orientation of new infrastructure development is shifting from rapid expansion toward more measured, system-oriented planning. Compared with the 14th Five-Year Plan’s focus on “5G, the industrial internet, and data centers,” the new framework emphasizes information and communications networks, a nationally integrated computing power network, and major science and technology infrastructure, with computing power now occupying a central position.

This shift implies a fundamental change in construction logic. Computing infrastructure must move away from fragmented, project-based development toward integrated system construction, evolving from standalone data centers into coordinated platforms that combine computing and networks, link space-based and ground-based systems, and integrate connectivity, sensing, and computing capabilities. At the same time, development priorities are moving beyond a hardware-centric approach. Greater emphasis is being placed on coordinated investment in both hardware and software, including operating systems, standard protocols, and cybersecurity platforms.

Importantly, the 15th Five-Year Plan also places renewed emphasis on upgrading existing infrastructure. The plan explicitly calls for promoting the digital and intelligent transformation of traditional infrastructure, signaling that future policy will prioritize revitalizing existing assets through digitalization and smart upgrades rather than relying solely on large-scale new construction.

Boosting domestic demand through more effective implementation of the “Two New Initiatives”

The “Two New Initiatives”, categorized by large-scale equipment upgrading and the trade-in of old consumer goods, remain a key policy tool for expanding domestic demand. Since their introduction more than a year ago, these policies have produced tangible effects, supporting industrial upgrading, stimulating consumption, and improving economic circulation.

Large-scale equipment upgrading has played an important role in driving industrial transformation. Value-added tax invoice data show that between April 2024 and July 2025, enterprise purchases of machinery and equipment increased by 7.3% year on year. The trade-in program for consumer goods has also significantly boosted demand across multiple categories. Over the same period, sales of household appliances and audio-visual equipment rose by 44.5% and 22.8% year on year, respectively, while retail sales of furniture and sanitary ware increased by 30.1% and 13.6%. Demand has also expanded rapidly in emerging sectors, with service robot manufacturing sales up 51.1% and new energy vehicle sales surging by 81.7%.

At the same time, implementation challenges and unintended effects have begun to emerge. In some cases, subsidy funds have circulated within the supply chain without effectively reaching consumers. In the used-car market, intensified competition has compressed demand for traditional repair services and led to a sharp contraction in parts-related businesses. These issues have highlighted the need to strengthen policy design and execution to avoid fund idling and dilution of policy effects.

The Central Economic Work Conference held in December reaffirmed domestic demand as a core focus in building a stronger domestic market. Measures such as expanding the supply of high-quality goods and services and removing unreasonable restrictions on consumption point to a clear policy shift toward service consumption. By the third quarter of 2025, per capita service consumption accounted for 47% of total consumption expenditure in China, compared with around 60% in major global economies. This gap indicates substantial room for expansion, making service consumption one of the key priorities for demand-side policy in 2026.

Strengthening fiscal capacity through tax reform and a shift in the taxation structure

In recent years, both tax revenue and overall fiscal revenue growth have slowed markedly, falling well below historical averages and placing growing structural pressure on China’s fiscal system. Research by the Chongyang Institute for Financial Studies at Renmin University of China shows that following the implementation of large-scale tax and fee reduction policies in 2019, the ratio of tax revenue to GDP declined steadily from 17.01% in 2018 to 12.97% in 2024. This level is significantly below the average of around 16% for emerging and developing economies and far lower than the roughly 25% observed in developed economies.

At the same time, fiscal expenditure growth has consistently outpaced both tax revenue and total fiscal revenue growth, widening the gap between revenues and expenditures. Against this backdrop, the Proposal for the 15th Five-Year Plan (2026–2030) calls for maintaining a reasonable macro tax burden, signaling an intention to reverse the prolonged decline in the tax-to-GDP ratio. Related policy directions, such as maintaining a reasonable tax burden for the manufacturing sector and prioritizing the cultivation of emerging pillar industries, reflect a broader effort to reinforce government fiscal capacity through a more sustainable taxation framework.

Looking ahead to 2026, fiscal and taxation reforms, together with the regularization of tax collection and administration, are expected to support a gradual increase in the macro tax burden. At the same time, the structure of taxation is set to evolve. The system will move away from a predominantly output-oriented model centered on value-added tax tied to production, toward a more income- and consumption-oriented framework that places greater emphasis on efficiency, fairness, and long-term fiscal sustainability.

Figure 10: Ratio of national tax revenue to GDP from 2014 to 2024 (%)
Source: National Bureau of Statistics

Retail

China’s consumer market in 2026: continued expansion with deeper structural upgrading

Consumer data for 2025 point to a clear shift in the role of consumption within overall growth. While retail sales growth has remained in the low single digits since June 2025, consumption’s quarterly contribution to economic growth rose sharply, from 29.7% at the end of 2024 to 56.6% in the third quarter of 2025. This increase reflects not only the impact of large-ticket consumption, such as upgrades of home appliances and 3C products, but also the growing momentum of service consumption, particularly in entertainment, tourism, transportation, and telecommunications.

Looking ahead to 2026, consumption is expected to continue providing solid support to economic growth. Since the Fourth Plenary Session of the 20th Central Committee, raising the household consumption rate has been identified as a key objective for the 15th Five-Year Plan period. For the first time, policy has explicitly emphasised investing in people, using new demand to guide new supply and, in turn, using new supply to generate new demand. Over the next five years, efforts to stimulate consumption are therefore expected to operate on both the demand and supply sides. On the demand side, policies will focus on improving employment, income, and social security—key factors shaping households’ capacity and willingness to consume. On the supply side, policy attention will centre on residents’ actual consumption needs, encouraging consumer enterprises to move beyond low-price, highly competitive models and toward innovation in products, services, and business models.

Figure 11: Contribution of consumption to economic growth and changes in total retail sales
Source: National Bureau of Statistics, Wind

Over the medium to long term, upgrading and expansion will remain the defining features of China’s consumer market over the next five years. On the demand side, new consumption needs continue to emerge, driven by trends such as the pursuit of emotional value, enhanced consumer experiences, and the expansion of service consumption. On the supply side, the market is shifting from a product-led model toward a more consumer-centric approach. Future growth will be shaped by structural opportunities arising from demographic changes, evolving consumption mindsets, and policy guidance. Looking ahead to 2026, several key trends are expected to characterize China’s consumer market.

The emotional economy becomes normalized, with sustained growth in pets, trendy toys, and interest-based consumption

Demand for emotional value is becoming more tangible and increasingly embedded in everyday consumption. From pet companionship and collectible trendy toys to stress relief, healing experiences, and light social interactions, the emotional economy has gradually evolved into a stable component of consumers’ daily lives. At the same time, emotional consumption is expanding across age groups. Interest-based “social currencies” now span generations, ranging from youth-oriented guzi collectibles to copper handicrafts and gardening activities favored by middle-aged and older consumers. Emotional value continues to shape product design, brand communication, and service and experience offerings across consumer sectors.

Brand de-idealization under the “affordable alternatives” economy, with rational consumption becoming mainstream

Consumers are increasingly moving away from the blind pursuit of premium or high-priced brands, placing greater emphasis on cost-effectiveness and practical functionality. The rise of affordable alternatives does not simply reflect a preference for lower prices, but rather a shift toward more rational and discerning consumption. This trend creates new growth opportunities for domestic brands while also prompting international brands to optimize product offerings and accelerate localized research and development. In 2026, the normalization of affordable alternatives is expected to continue, pushing enterprises to focus more strongly on product innovation alongside ongoing improvements in supply chain management and operational efficiency.

Regional consumption momentum strengthens in international consumer hub cities and county-level markets

The 15th Five-Year Plan calls for the development of international consumer hub cities. Going forward, cities such as Beijing, Shanghai, Guangzhou, Chongqing, and Tianjin, together with their surrounding metropolitan areas, are expected to see growing demand in emerging consumption sectors, including first-to-market product launches, the silver economy, the night-time economy, live performances, and sports events.

At the same time, consumption potential in county-level markets is being further unlocked through accelerated upgrades to commercial infrastructure. Supported by expanding e-commerce platforms and logistics networks, a wider range of high-quality and cost-effective products is reaching residents in these areas, driving consumption upgrading. According to Ministry of Commerce big data monitoring, from January to October 2025, retail sales of agricultural products and rural online retail sales increased by 9.5% and 7.5% year-on-year, respectively, both exceeding the national average. Rural online retail sales are expected to maintain relatively fast growth in 2026.

Figure 12: Number of visa-free entries reaches a new high
Source: National Immigration Administration

Inbound tourism rebounds strongly, with transit tourism shifting toward deeper, experience-led travel

China’s expanded visa-free arrangements, continued improvements in visa facilitation, the gradual recovery of international flight capacity, and the amplifying role of social media in promoting “travel in China” have collectively driven a strong rebound in inbound tourism. As a result, inbound travel has emerged as an increasingly important growth driver for the domestic cultural and tourism market. According to data from the National Immigration Administration, 20.134 million foreign visitors entered China in the first three quarters of 2025, representing a year-on-year increase of 22.3%. Among them, 7.246 million entered under visa-free arrangements, up 48.3% year-on-year. Inbound tourism is expected to sustain relatively rapid growth into 2026.

In terms of destination choices, inbound tourists are no longer concentrated solely in traditional first-tier cities such as Beijing, Shanghai, Guangzhou, and Shenzhen. An increasing number of international visitors are travelling further into central and western regions of China, reflecting a shift toward more in-depth travel experiences. Correspondingly, high-speed rail has become a key mode of transportation for inbound tourists. Trip.com data shows that during the 2025 summer travel season, bookings of high-speed rail tickets by visitors from Malaysia, Australia, Canada, and the UK increased by more than 100% year-on-year. As in-depth inbound tourism continues to gain traction, sectors including catering, accommodation, cultural tourism, and retail in international consumer hub cities, as well as inland cities and regions with strong social media visibility, are expected to benefit. Going forward, differentiated service offerings, multilingual service capabilities, and convenient payment solutions will become critical competitive factors for cultural and tourism enterprises.

In response to the evolving characteristics of China’s consumer market, businesses need to maintain a sustained focus on structural consumption trends, localization, and regional consumption opportunities. On the one hand, companies should continue to identify structural growth opportunities within traditional consumption areas. This includes targeting emotional consumption, the pet economy, experiential consumption, and emerging demand linked to single-person households and small family structures, supported by deeper insights into specific demographic groups and consumption scenarios.

On the other hand, businesses should accelerate more refined regional and localization strategies, tailoring products and market approaches to China’s diverse urban clusters, city tiers, and segmented consumer groups. At the same time, close attention should be paid to region-specific policy opportunities. By strengthening brand presence through flagship stores, experiential flagship formats, and cross-sector cultural collaborations, companies can more effectively unlock regional consumption potential and enhance overall brand momentum.

Logistics

The path toward logistics value upgrading

The logistics industry enters a phase of structural upgrading

The 15th Five-Year Plan calls for producer services to move up the value chain and develop toward higher-end and more specialized segments. They also underscore producer services as a core component of the modern industrial system and an important engine of economic growth. As one of the core segments of producer services, modern logistics is tasked with the crucial mission of providing core support for the high-quality development of the real economy over the next five years. In line with this direction, many provinces have released their own 15th Five-Year Plans, most of which explicitly highlight deeper integration between logistics, manufacturing, and commerce. A central objective is the construction of an efficient, coordinated modern logistics service system.

This strategic shift has fundamentally altered the positioning and development logic of the logistics sector. Logistics is no longer viewed as a stand-alone support function operating separately from production and circulation. Instead, it is increasingly recognized as a value-creating link that is deeply embedded within industrial systems and supply chains.

From an operational perspective, the logistics industry already has a solid foundation to support production and circulation activities. Data from the China Federation of Logistics and Purchasing show that the total value of goods moved nationwide reached 263.2 trillion yuan in the first three quarters of 2025, representing year-on-year growth of 5.4%. Taking into account the seasonal uplift from peak manufacturing and commercial activity in the fourth quarter, full-year logistics volume is expected to exceed 380 trillion yuan. Over the same period, total social logistics costs amounted to 14.2 trillion yuan, up 4.3% year-on-year. Looking further ahead, long-term projections indicate that China’s total social logistics volume is likely to sustain growth of around 6% annually and surpass 500 trillion yuan by 2030, providing substantial space for the expansion and specialization of producer-oriented logistics services.

Figure 13: Total social logistics volume and growth rate 2023-2030
Data sources: NBS, Deloitte Research

Four key areas for deepening logistics upgrading

To meet the upgrading demands of producer services while building on its own foundations for development, the logistics industry is accelerating focused investment in several core areas. These efforts point to four concrete pathways through which logistics can move up the value chain.

1. End-to-end supply chains: from fragmented links to full-chain collaboration

Rising demand for full-cycle services from producer services is pushing logistics providers to accelerate their transition toward end-to-end supply chain solutions. In 2026, a growing number of large manufacturing enterprises are expected to adopt integrated logistics arrangements covering procurement, production, sales, and reverse logistics. For logistics companies, this represents a shift from reactive, task-based operations toward early-stage involvement and joint planning of production schedules.

In practice, new energy vehicle manufacturers are increasingly using vendor-managed inventory (VMI) models, supported by pre-positioned warehouses, to enable precise and timely replenishment. In the electronics manufacturing sector, full-process supply chain services have already been deployed, improving overall resource utilisation. As logistics networks continue to mature, national logistics hubs are achieving tighter integration between trunk transport, branch distribution, warehousing, and last-mile delivery, significantly enhancing the responsiveness and stability of long-distance supply chains.

2. Digitalisation and AI: from tool adoption to intelligent decision-making

Digital technologies and artificial intelligence are becoming the primary drivers of efficiency gains in productive logistics. Leading logistics enterprises are expanding integration with industrial internet platforms, enabling data interoperability across core systems such as transportation management systems (TMS), warehouse management systems (WMS), manufacturing execution systems (MES), and enterprise resource planning (ERP) platforms.

At the same time, the application of large AI models in logistics is moving beyond isolated pilots toward broader, scenario-based deployment. Demand forecasting models are helping manufacturers reduce safety stock levels, while intelligent scheduling systems optimise transport routing. The widespread adoption of automated guided vehicles (AGVs) in unmanned warehouses is also reducing labour costs. For example, Cainiao’s industrial cloud warehouses apply AI-based pre-sorting technologies that allow factory orders to be sorted immediately upon leaving the production line, significantly shortening order fulfilment times.

3. Green logistics: from compliance pressure to competitive advantage

The green transition of producer services is accelerating low-carbon transformation across the logistics sector. During the 15th Five-Year Plan period, the number of new energy logistics vehicles is expected to rise rapidly, with penetration in urban distribution increasing markedly. The use of reusable packaging will also expand, while the control of excessive packaging will be incorporated into enterprise evaluation and rating systems.

At the infrastructure level, the construction of photovoltaic-powered green logistics hubs is accelerating, contributing to a steady decline in energy consumption per unit at logistics parks. In cross-border logistics, external regulatory pressures, such as the EU’s Carbon Border Adjustment Mechanism (CBAM), are compelling enterprises to establish carbon footprint accounting systems. Firms with recognised green certifications are better positioned to secure pricing premiums. Leading companies such as SF Express have begun integrating green warehousing and distribution with carbon sink trading mechanisms, achieving early positive outcomes.

4. Internationalization and overseas warehouses: from network expansion to localized operations

The overseas expansion of producer services is reshaping the development of cross-border logistics. Overseas warehouses are increasingly becoming a central pillar for enhancing the resilience of international supply chains. In 2026, the overall scale of China’s overseas warehouse network is expected to continue expanding, but the emphasis will shift from rapid rollout toward functional upgrading.

In emerging markets such as ASEAN and the Middle East, overseas warehouses are adding more localised service capabilities, including inspection, labelling, and maintenance. This supports integrated services spanning inventory management, distribution, and after-sales support, significantly improving fulfilment efficiency. Meanwhile, transport capacity along international logistics corridors—such as the China–Europe Railway Express and the New Western Land–Sea Corridor—will continue to improve. Together with more efficient, digitalised customs clearance, overseas warehouses will become more closely linked with domestic logistics hubs, forming a more cohesive global supply chain network.

Life Science & Healthcare

Innovation as the engine, with global expansion accelerating

In 2025, advances in biopharmaceutical innovation continued to gain momentum. China consolidated its position as the world’s second-largest contributor to innovative drug development, supported by sustained national policies promoting the sector’s high-quality growth. At the same time, Chinese pharmaceutical companies markedly accelerated out-licensing activities, signalling a shift from a primarily domestic focus toward deeper participation in global markets.

Looking ahead to 2026, the biopharmaceutical industry is set to enter a new stage of high-quality development. Drug pipelines are expected to continue expanding, reflecting the steady strengthening of innovation capabilities across the sector. Meanwhile, the globalization of Chinese biopharma firms is likely to intensify further, ushering in a more mature phase of international expansion.

1. Industry positioning upgraded to a core domain of “new quality productive forces,” marking a new stage of high-quality development

The Proposal for the 15th Five-Year Plan explicitly identifies biopharmaceuticals as a core domain of “new quality productive forces,” signalling that the industry has entered a new development stage defined by original innovation and high-quality growth.

At the policy level, the plan places strong emphasis on supporting innovative drugs and medical devices, with the aim of accelerating high-level scientific and technological self-reliance. The strategic direction is to shift the industry from follow-on and incremental innovation toward original, leadership-driven breakthroughs, while making forward-looking deployments in future-oriented fields such as biomanufacturing and brain–computer interfaces. Through a framework of “central coordination and local specialisation,” the plan seeks to promote regional collaboration and avoid homogenised competition across provinces.

At the same time, the proposal calls for improvements to the multi-tiered medical security system. Against the backdrop of mounting fiscal pressure on the national basic medical insurance fund, greater emphasis is placed on accelerating the development of commercial health insurance and expanding innovative drug reimbursement catalogues. This is intended to create broader, more sustainable payment mechanisms for innovative pharmaceutical outcomes.

Taken together, these policy signals are expected to significantly strengthen R&D investment and reinforce innovation-driven growth mechanisms across the sector. The localization of high-end biologics and cutting-edge technologies is likely to accelerate, while the integration of medicine and engineering—and the efficiency of translating research into commercial outcomes—should continue to improve. As policy resources increasingly favor high-tech and high-quality projects, competitive thresholds across the industry will rise, benefiting companies with strong core technologies, demonstrable clinical value, and commercial execution capabilities, while also increasing structural demand for specialized talent and long-term capital.

2. Innovative drugs shift from “volume accumulation” to “quality breakthroughs,” making 2026 a pivotal year

China’s innovative drug market continues to expand, with total market size projected to reach approximately RMB 1.22 trillion in 2025, implying a compound annual growth rate of around 8.3% between 2020 and 2025. Supported by sustained policy guidance for high-quality innovation, gradual diversification of payment channels, and comprehensive upgrades in industrial capabilities, the sector is transitioning from policy-driven expansion to an endogenous growth phase centred on clinical value and global competitiveness.

On the policy front, the emphasis is shifting from encouraging the quantity of innovation toward prioritising quality and clinical relevance. Guidelines issued by the Center for Drug Evaluation (CDE) under the National Medical Products Administration increasingly stress scientific rigor, mechanistic novelty, and the targeting of genuine unmet clinical needs. This is guiding R&D resources toward differentiated, high-quality innovation rather than repetitive development. In parallel, efforts to address structural bottlenecks across the entire innovative drug value chain are accelerating, with steady improvements in areas ranging from cell line development and core manufacturing equipment to quality assurance and quality control systems.

From an industry perspective, capability upgrading is progressing rapidly. Chinese CDMOs have achieved substantial advances in both technology and capacity, particularly in large-molecule drugs, antibody-drug conjugates (ADCs), and cell and gene therapies (CGT). China’s share of the global innovative drug pipeline has now exceeded 20%, ranking second worldwide in new drug R&D activity. Biomanufacturing capabilities have been elevated to the level of a strategic national capability, with continuous-flow production processes, digital factories, and localisation of key equipment advancing at pace. Against this backdrop, multinational pharmaceutical companies are accelerating the localisation of their supply chains in China and increasingly selecting Chinese manufacturing bases to serve global markets.

Figure 14: Changes in the scale of China's drug research pipeline
Source：Pharmaprojects, IQVIA, Deloitte research

3. Innovative drugs enter a new era of globalization, with license-out activity accelerating

In recent years, the overseas expansion of high value-added products such as innovative drugs, biosimilars, and high-end medical devices has accelerated significantly. An increasing number of Chinese companies have successfully completed regulatory approvals and launched products in major markets such as Europe and the United States. This trend reflects marked improvements in domestic innovation capacity and regulatory compliance, while also creating more stable and predictable overseas revenue streams.

At the same time, out-licensing of innovative drugs from China has entered a phase of rapid acceleration, with both deal volume and transaction value rising steadily. Notably, in the first three quarters of 2025 alone, the number and total value of license-out deals exceeded the full-year figures for 2024, with more than 100 transactions and cumulative deal value surpassing USD 90 billion. Oncology, autoimmune diseases, and metabolic disorders have been the most active therapeutic areas, acting as key drivers of biopharma globalisation. This momentum is expected to continue into 2026, with further acceleration in license-out activity.

More importantly, the design of innovative drug pipelines is increasingly oriented toward global markets from the outset. This includes full alignment with international standards in indication selection, clinical endpoints, and patient enrolment strategies. The pathway to international expansion is also evolving—from reliance on single licensing agreements toward models in which Chinese companies independently advance overseas clinical trials and move more quickly into global commercialisation. This shift marks a transition from simply “exporting products” to a more advanced phase of “exporting capabilities.”

4. Biopharma IPO markets rebound, with fundraising focused on core innovation and globalization capabilities

Supportive signals continue to emerge at both the policy and institutional levels. In 2025, China’s capital markets adopted a more accommodative stance toward innovative pharmaceutical and biotechnology companies that remain unprofitable but demonstrate strong long-term potential. Policy support for innovative drugs, alongside updated listing standards on the Sci-Tech Innovation Board, has significantly improved the efficiency of IPO initiation and approval.

As industry innovation activity recovers and both license-out transactions and internationalisation efforts accelerate, investor confidence has gradually rebounded. Under these conditions, IPOs are once again becoming an important channel for capital exit and project monetisation within the biopharma sector.

Unlike earlier periods characterised by broad-based listings, the current wave of IPOs is increasingly concentrated among leading companies with mature product pipelines, clear commercialisation pathways, and demonstrated capabilities in international cooperation or industrial-chain integration. This reflects a capital market shift toward “quality selection” rather than scale expansion. At the same time, listing venues in Hong Kong and overseas markets have become important complements, allowing companies greater flexibility in choosing listing locations and financing strategies while also facilitating access to international capital.

Figure 15: Evolution of IPOs in China's Life Sciences and Healthcare Industry
Source: PharmaGo, Deloitte Research

2025 marked a pivotal turning point for China’s pharmaceutical industry. Innovative drugs achieved a clear commercial breakthrough, while pharmaceutical globalisation advanced in a leapfrog manner, with annual out-licensing deal value reaching a historic high. At the same time, the pharmaceutical IPO market revived on the Hong Kong Stock Exchange, signalling a recovery in capital-market confidence.

Overall, China’s pharmaceutical industry is transitioning from a predominantly domestic market to a new stage of global development. The innovative drug sector is steadily shifting from follow-on strategies toward first-in-class (FIC) and best-in-class (BIC) innovation. Pharmaceutical globalisation is evolving from transaction-led licensing models to deeper, more integrated global operations. Meanwhile, the IPO market is expected to become more rational, with capital increasingly concentrated in high-quality companies that combine robust pipelines with clear commercialisation pathways.

Automotive

A year of divergence: EV plateau, AI acceleration, and tougher global expansion

In 2026, China’s auto industry will enter a pivotal year of divergence. New energy vehicle (NEV) penetration is likely to reach a near-term ceiling, vehicle intelligence is approaching an inflection point driven by the integration of AI models, and Chinese automakers’ overseas expansion is moving into a more difficult phase of “strategic breakthroughs” following a period of rapid growth. As a result, the industry’s competitive focus is shifting away from pure scale—measured by penetration rates and market share—toward higher-quality growth.

NEV penetration may plateau while OEMs prioritize efficiency

The electrification trend will not reverse in 2026, and policy will remain the most important swing factor for demand. Although the Chinese government has announced that purchase subsidies will continue through 2025, the market broadly expects a more restrained policy rollout thereafter. From 2026, NEVs will move from full purchase tax exemption to an effective tax rate of 5% (half of the standard rate), with the maximum tax reduction capped at RMB 15,000 per vehicle. For models in mainstream price segments, this effectively translates into an additional tax burden of around RMB 7,000–15,000, dampening demand among more price-sensitive consumers.

At the same time, eligibility requirements for tax relief on plug-in hybrid vehicles (PHEVs) are being tightened. Under the new rules, PHEVs must achieve a minimum all-electric range of 100 kilometers. Short-range PHEV models that cannot be upgraded quickly may face higher costs or be forced out of the market. Taken together, these changes suggest that NEV penetration will fluctuate around the 60% level in 2026.

Figure 16: Quarterly NEV penetration in China, 2023–2026
Source: GlobalData

With policy providing less incremental lift and NEVs entering a phase of scaled competition, original equipment manufacturers (OEMs) are shifting their focus from boosting penetration to cost competitiveness and engineering efficiency. This has prompted a reassessment of cost-reduction opportunities across the entire value chain, from R&D, procurement and manufacturing, to sales, operations and organizational structures.

At the R&D end, platform-based and modular architectures can significantly increase parts commonality, spread one-off investments such as tooling, design, and validation, and shorten development cycles. Leapmotor, for example, reports an 88% parts commonality rate across its C-series models, with the development of its second model requiring only around 20–30% incremental cost. In manufacturing, Tesla has substantially reduced unit costs through integrated giga-casting, highly automated processes, tightly integrated factory layouts, faster cycle times, and stable continuous production. At Tesla’s Shanghai plant, the latest takt time has reportedly been shortened to 30 seconds per vehicle.

Against a backdrop of macro uncertainty, intensifying competition, and sustained margin pressure, cost control is increasingly becoming a core organizational capability rather than a one-off campaign. Traditional “cut-and-slash” approaches are losing effectiveness. OEMs will need more strategic, enterprise-wide cost management—avoiding short-termism, embedding cost discipline into long-term planning, and increasingly leveraging emerging technologies such as AI to identify and capture savings earlier in the process.

Inclusion of large AI models marks an inflection point for intelligent vehicles

In 2026, the deployment of large AI models in vehicles is likely to catalyze a clear inflection point for intelligent vehicles. Competition will increasingly hinge on whether automakers can translate AI capabilities into scalable systems that support sustained iteration, thereby testing the robustness of OEMs’ closed loops across data, models, and compute.

On the one hand, large models are pushing the smart cockpit beyond traditional voice assistants toward a “cockpit agent.” Rather than merely responding to commands, such systems are designed to infer user intent, proactively plan tasks, and connect in-car and out-of-car service ecosystems. Li Auto’s recently launched “Driver Agent,” for example, is positioned as a task-oriented driving assistant capable of translating high-level instructions into actionable sequences and executing them on the user’s behalf.

On the other hand, AI is reshaping how intelligent driving systems are developed and improved. The industry is moving away from rule-heavy, modular pipelines toward more learning-driven approaches—often described as end-to-end and data-driven—where AI models replace portions of hand-coded logic, and system performance improves primarily through data accumulation, training, and rapid iteration. This paradigm shift unifies technology stacks and enhances generalization, facilitating the rollout of advanced driver-assistance systems in mass-market vehicles. For instance, autonomous-driving chipmaker Horizon now offers tiered urban driving-assistance solutions differentiated by compute capability and price. Its city NOA solution, based on a single Journey 6M chip, is targeting vehicles priced below RMB 100,000.

C2G: From “selling abroad” to long-term localized operations

In the first ten months of 2025, China’s passenger vehicle export growth slowed to 16%. Amid continued geopolitical and trade uncertainty, export growth in 2026 is likely to remain under pressure. Overseas success will increasingly depend on automakers’ ability to operate systematized, localized businesses. This shift demands a more holistic approach with OEMs building durable local capabilities across three key pillars.

1. Localized R&D and product adaptation

Beyond meeting basic regulatory entry requirements, OEMs must respond to local characteristics such as driving habits, language and HMI preferences, digital ecosystems, and terrain, climate, and road conditions—often requiring market-specific models. In 2025, several Chinese automakers announced the establishment of overseas R&D centers. Chery, for example, set up an innovation and R&D center in Spain focused on Europe-oriented model design and regulatory certification. BYD announced a European headquarters in Hungary alongside a dedicated R&D center to support certification, testing, localization design, and feature development.

2. Continued upgrading of localized production

Chinese automakers are combining multiple approaches—including KD/CKD assembly, greenfield plants, refurbishment of existing facilities, and contract manufacturing—to navigate uncertainty around tariffs, rules of origin, and currency fluctuations. XPeng and GAC, for instance, have used contract manufacturing to mitigate the impact of EU tariffs, while Chery pursued localized production by renovating and upgrading a former Nissan plant in Spain. More broadly, the concept of building factories overseas has evolved from a defensive response to tariffs into a more proactive strategy aimed at establishing regional manufacturing hubs and building a more resilient global capacity network. Changan’s Thailand plant is intended not only to serve ASEAN markets but also to reach other right-hand-drive markets such as Australia and New Zealand, while Great Wall Motor is positioning its newly completed Brazil plant as a base for Latin America.

3. Localized sales, delivery and service

This includes choosing appropriate sales models and channel structures, building spare-parts supply chains, ensuring timely and accessible after-sales service, and offering suitable automotive financing solutions. In 2025, BYD made a major shift in Germany by bypassing import intermediaries to work directly with dealers, while also partnering with local financial institutions to provide differentiated auto-finance products for both corporate and individual customers. Changan has established a parts center in Thailand targeting right-hand-drive markets, with ambitious goals for coverage and delivery lead times.

Taken together, these developments point to a more capability-driven approach to global expansion. The transition, however, is rarely smooth. Leading players are increasingly using pilot markets to accumulate experience and then convert that knowledge into transferable operating systems—reusable playbooks, shared infrastructure, and standardized processes that support more disciplined and scalable international growth over time.