Three economic flashpoints for 2026

This report is from this week’s CNBC’s The China Connection newsletter, which brings you insights and analysis on what’s driving the world’s second-largest economy. You can subscribe here.

China is closing out 2025 with far more confidence on the world stage than at the start of the year.

It was the first major economy to retaliate against U.S. “Liberation Day” tariffs, and has increasingly played the rare earths card. Its tech companies overcame U.S. chip restrictions and released low-cost artificial intelligence models that rival far pricier offerings from the U.S., such as those from OpenAI. Global perceptions of China are improving.

Whether the broader Chinese economy exudes the same level of confidence is less clear.

The country’s top leaders are expected to discuss policy plans for 2026 at the annual “Central Economic Work Conference” next week. While no dates have been officially released, the conference ran from Dec. 11 to 12 last year.

Here are three key drags economists are watching:

China’s real estate woes worsened this year on many fronts, with the latest centering on property giant Vanke‘s financial struggles.

Once one of China’s largest developers by sales and an iconic local brand, Vanke is seeking to delay repayment of a 2 billion yuan ($283 million) onshore bond due Dec. 15. That news prompted S&P Global Ratings to downgrade Vanke’s debt late last week.

“Homebuyers’ confidence in China has already been quite fragile, so if [Vanke has to pursue distressed financing] that could probably hit sentiment further,” said Edward Chan, director, corporate ratings at S&P Global Ratings.

“That may also drag property sales nationwide,” he said. He added that a mortgage subsidy plan reportedly under discussion is unlikely to reverse the slide in property sales.

Goldman Sachs said over the weekend that new home sales in November fell by 20% to 30% from a year ago. “In our view, the odds of another batch of property easing measures being introduced have increased,” the analysts said.

But how bad is too bad?

As of October, average monthly sales nationwide were still 65.3 billion yuan below their 2024 levels, Chan noted.

“It’s difficult to gauge now at what level the government is going to think is a level for broader concern.”

Beijing clearly has other things on its mind.

After a five-year planning meeting in late October, policymakers signaled greater resolve to boost domestic consumption. That was just days before senior leaders, including Chinese President Xi Jinping, left Beijing for high-level trade talks with the U.S. and other countries.

Last week, six ministries jointly released a sweeping 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 another 10 should reach 100 billion yuan during the same period, the document said. The plan, however, didn’t specify how.

“Funding arrangements and implementation details are lacking,” Goldman Sachs analysts said in a report over the weekend, while noting a clear emphasis on integrating AI into consumer product development and services.

“Overall, this plan focuses entirely on the supply side,” the analysts said, “and we continue to believe sustained consumption growth will require policy support for job creation and income gains.”

Of concern, the bad loan ratio for households in China reached 1.33% in the first half of this year, exceeding the corporate ratio, which declined to 1.2%, according to Natixis.

Businesses can restructure, but households have far fewer options, said Natixis senior economist Gary Ng, especially amid ongoing pressure from the real estate and labor markets.

Since the pandemic, Chinese consumers have become increasingly price-conscious, while companies have ramped up competition for their wallets through price cuts.

Even with extended promotions running from early October to mid-November, China’s biggest shopping event of the year saw sales growth slow to 14.2% from 26.6% last year, according to third-party analysis.

Headline inflation has hovered close to zero in recent months. But a far greater 1.2% increase in the “core” CPI, which excludes food and energy prices, is hardly reassuring either.

Nomura’s Chief China Economist Ting Lu estimated last week that roughly a quarter of those inflation gains came from the surge in gold prices, according to his analysis of official figures. Strip that out, and core CPI was just 0.9% in October, he said.

Lu expects Beijing to step up policy support in the spring to get the country’s upcoming five-year plan off to a solid start.

China is set to release November inflation data on Dec. 10, followed by retail sales, industrial production and investment figures on Dec. 15.

Charlene Chu, a macrofinancial senior analyst for China at Autonomous Research, said that persistent deflation has discouraged more Chinese companies from investing domestically, fearing they cannot generate a return.

Kerry Mok, President and CEO of SATS, which derives more than half of its revenue from air cargo, said that China’s overall trade has grown, while e-commerce sales in the U.S. fell because of the removal of the “de minimis” rule.

Jacqueline Du, head of China industrial tech research at Goldman Sachs, said there is demand for humanoid robots even if they are not yet highly useful, and companies in the supply chain are optimistic.

Humanoid robot bubble? China’s economic agency spokesperson warned Friday of a glut in humanoid robots as more than 150 companies rush into the sector. The agency plans to release industry guidelines.

Alibaba launches AI glasses. On the heels of an AI app revamp, the Chinese e-commerce giant kicked off sales of its smart frames on Thursday for $500 in China, a market where the Meta Ray-Ban Display glasses are not officially available.

Hong Kong fire draws donors. Major Chinese companies from Tencent to Alibaba-affiliate Ant Group pledged millions to support rescue efforts following the deadliest Hong Kong fire since 1948 last week. At least 156 people have died.

China’s CSI 300 was flat as of 12 p.m. local time Wednesday. The benchmark is up 0.65% this week and is on track for a second straight weekly gain. It has climbed 15.73% so far this year.

Hong Kong’s Hang Seng Index fell 0.9% at noon. It is unchanged for the week and has advanced 28.85% since January.

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

— Nur Hikmah Md Ali

Dec. 3-5: French President Emmanuel Macron to visit China

Dec. 8: China trade data for Nov

Dec. 10: CPI, PPI for Nov