Three economic flashpoints for 2026

This report is from CNBC’s The China Connection newsletter this week, delivering insights and analysis on the powerhouse of the world’s second-largest economy. You can subscribe here.

China is ending 2025 far more confident on the world stage than it was at the beginning of the year.

It was the first major economy to retaliate against the U.S.’s “Emancipation Day” tariffs and is increasingly playing cards on rare earths. The tech company has overcome U.S. chip restrictions and released a low-cost artificial intelligence model that rivals much more expensive U.S. products like OpenAI. The world’s perception of China is improving.

It is less clear whether China’s economy as a whole exudes the same level of confidence.

The country’s leaders are scheduled to discuss policy plans for 2026 at the annual Central Economic Work Conference next week. Although the dates have not been officially announced, the conference was held from December 11th to 12th last year.

There are three main factors that economists are looking at:

China’s real estate problems have worsened on many fronts this year, with real estate giants taking center stage recently. Vankeeconomic struggles.

Vanke, once one of China’s biggest developers by revenue and an iconic local brand, is seeking to postpone the repayment of a 2 billion yuan ($283 million) onshore bond due on December 15. Following the news, S&P Global Ratings downgraded Vanke’s debt late last week.

“Homebuyers’ confidence in China is already quite fragile, and (if Vanke Financial has to pursue distressed financing) sentiment could likely take a further hit,” said Edward Chan, director of corporate ratings at S&P Global Ratings.

“That could be a drag on real estate sales nationwide,” he said. He added that mortgage subsidy plans reportedly under discussion were unlikely to reverse the decline in property sales.

Goldman Sachs announced over the weekend that new home sales in November were down 20% to 30% compared to the same month last year. “In our view, new real estate mitigation measures are becoming increasingly likely,” the analysts said.

But how bad is too bad?

Zhang pointed out that as of October, the national average monthly sales were still 65.3 billion yuan below the 2024 level.

“It is difficult to tell at this stage what the government considers to be a level of broader concern.”

Beijing clearly has other things in mind.

After a five-year planning meeting in late October, policymakers showed further determination to boost domestic consumption. It came just days before senior Chinese leaders, including President Xi Jinping, left Beijing for high-level trade talks with the United States and other countries.

Last week, the six ministries jointly announced a comprehensive plan to develop consumer industries ranging from electronics to sporting goods. At least three sectors should be worth 1 trillion yuan each by 2027, and 10 more sectors should reach 100 billion yuan in the same period, according to the document. However, the plan did not specify how this would be done.

Analysts at Goldman Sachs wrote in a note over the weekend that while “financing arrangements and implementation details are lacking,” there is a clear focus on integrating AI into consumer product development and services.

“Overall, the plan is entirely supply-side focused,” the analysts said, “and we continue to believe that sustained consumption growth requires policy support for job creation and income growth.”

Of concern, according to Natixis, is that China’s household non-performing loan ratio reached 1.33% in the first half of this year, outpacing the corporate ratio, which fell to 1.2%.

Gary Ng, senior economist at Natixis, said while businesses can restructure, there are far fewer options for households, especially as pressure from the real estate and labor markets continues.

Since the pandemic, Chinese consumers have become increasingly price-conscious, and companies are increasingly competing for wallets by cutting prices.

Sales growth at this year’s biggest shopping event in China slowed to 14.2% from 26.6% last year, despite a promotion that extended from early October to mid-November, according to a third-party analysis.

Headline inflation has hovered near zero in recent months. However, the strong 1.2% increase in the “core” CPI, which excludes food and energy prices, is by no means reassuring.

Ting Lu, Nomura’s chief China economist, estimated last week that an analysis of official statistics shows that about a quarter of the rise in inflation is due to the rise in gold prices. Even after deducting that, core CPI in October was just 0.9%.

Lu expects China to step up policy support next spring and get the country’s next five-year plan off to a solid start.

China is scheduled to release inflation data for November on December 10th, followed by retail sales, industrial production and investment statistics on December 15th.

Charlene Chu, senior macro finance analyst for China at Autonomous Research, said more Chinese companies are hesitant to invest in the country for fear of not being able to generate profits due to prolonged deflation.

Kelly Mok, president and CEO of SATS, which derives more than half of its revenue from air cargo, said that while overall trade with China is growing, U.S. e-commerce sales have declined due to the repeal of the “de minimis” rule.

Jacqueline Du, head of China industrial technology research at Goldman Sachs, said humanoid robots are still in demand, even if they aren’t very useful yet, and companies in the supply chain are optimistic.

Humanoid robot bubble? A spokesperson for China’s Economic Administration warned on Friday of an oversupply of humanoid robots, with more than 150 companies entering the field. The agency plans to issue industry guidelines.

Alibaba releases AI glasses. Following the AI ​​app revamp, the Chinese e-commerce giant on Thursday began selling smart frames for $500 in the Chinese market, where Meta Ray-Ban display glasses are not officially available.

Donors gather for Hong Kong fires. China’s biggest companies, from Tencent to Alibaba’s Ant Group, last week pledged millions of dollars to aid relief efforts in the wake of Hong Kong’s deadliest fires since 1948. At least 156 people died.

China’s CSI300 index was flat as of 12pm local time on Wednesday. The benchmark is up 0.65% this week, marking its second consecutive week of gains. Year-to-date, it has increased by 15.73%.

Hong Kong’s Hang Seng Index was down 0.9% as of midday. It was unchanged for the week and has risen 28.85% since January.

The offshore yuan last traded at 7.0609 yuan against the dollar, its highest level since October 2024.

— Nur Hikma MD Ali

December 3rd-5th: French President Emmanuel Macron visits China

December 8: China trade statistics for November

December 10: November CPI, PPI