Core Viewpoint - The article discusses the outlook for China's economy in 2026, emphasizing the need for policies to address supply-demand imbalances and achieve around 5% economic growth through a combination of supply-side and demand-side measures [2][5]. Economic Outlook - In 2025, China's exports showed resilience despite U.S. tariffs, with an expected export growth of approximately 5.3% for the year [3][12]. - The internal demand weakened after a brief recovery, primarily due to debt pressures from financial cycle adjustments [3][29]. - The anticipated policy measures for 2026 will focus on enhancing quality consumption supply while reducing inefficient production capacity [4][9]. Supply-Side Policies - The supply-side policies are expected to continue the "anti-involution" approach, aiming to reduce low-efficiency production while increasing quality consumption supply [4][9]. - The government may implement measures such as easing market access and optimizing management to stimulate consumption in sectors like health and education [5][64]. - The overall impact of these supply-side measures on total supply may be limited, as the focus is on optimizing resource allocation rather than broad capacity reduction [61][62]. Demand-Side Policies - Demand-side policies are projected to be moderately intensified, with a focus on increasing spending in high-efficiency sectors while reducing it in low-efficiency areas [5][66]. - The government is likely to enhance support for areas such as social security, education, technology, and environmental protection, while traditional infrastructure investment may slow down [5][66]. - The anticipated increase in the general budget deficit rate by approximately 1.5 percentage points in 2026 reflects the need for more robust demand-side measures [5][68]. Debt and Internal Demand - The internal demand is significantly affected by debt issues, with the private sector undergoing deleveraging amidst restrained policy stimulus [29][30]. - The burden of debt repayment is limiting the effectiveness of fiscal expansion, necessitating a focus on debt resolution to invigorate economic vitality [29][68]. - The analysis indicates that companies with longer accounts receivable periods are contracting in investment and employment, highlighting the need for debt clearance to stimulate economic activity [29][41]. Consumption Supply Enhancement - Recent policies emphasize the importance of increasing quality supply to stimulate consumption, with a focus on removing restrictive measures in various sectors [62][64]. - The potential market size for sectors benefiting from supply-side policy adjustments is estimated at approximately 3.9 trillion yuan, representing about 2.9% of the 2024 GDP [65][66]. - Specific areas identified for consumption enhancement include durable goods like yachts and private planes, as well as services in healthcare and education [65][66].