Economic Overview - In 2025, China's economy demonstrated resilience with two "above expectations" and two "below expectations" characteristics, showing a "front high and back low" trend throughout the year[1] - The GDP growth for 2025 is projected to be around 5%, with a nominal GDP growth target of 5% as well, indicating a need for price recovery embedded in growth targets[2] Key Economic Drivers - The main economic lines for 2026 will focus on real estate and local government debt, with exports and central government-supported infrastructure investment serving as primary support forces[2] - In 2025, China's exports grew by 5.3% year-on-year, supported by diversified market layouts and upgraded export structures[8] Challenges and Risks - The real estate market's recovery in 2025 was slower than expected, with real estate investment declining by 14.7% year-on-year from January to October, exceeding the previous year's decline of 10.6%[10] - Internal challenges include low consumer spending and ongoing adjustments in the real estate market, which may prolong the recovery process[28] Policy Recommendations - Fiscal policy should be proactive, with a recommendation for a fiscal deficit rate of no less than 4% in 2026 to counteract the negative effects of real estate downturns and local government debt[33] - Monetary policy should leverage the opportunity presented by the Federal Reserve's interest rate cuts to further lower domestic interest rates and stimulate economic recovery[34] Consumer and Investment Outlook - Consumer spending is expected to gradually recover, supported by subsidy policies in childcare and pensions, alongside a potential increase in service consumption[24] - Fixed asset investment is projected to decline by 1.8% in 2026, with real estate investment expected to decrease by 15.2%[26]

Core Viewpoint - The article emphasizes the significant structural deviation in China's consumption, which is approximately 20 percentage points lower than the global average, indicating a pressing need for reforms to boost consumption and improve living standards [3][4][10]. Group 1: Causes of Consumption Insufficiency - China's household consumption, final consumption, and service consumption as a percentage of GDP are significantly lower compared to OECD countries, with a gap of 25% to 33% [3][4]. - The low level of basic public services and the large urban-rural gap are major contributors to this structural deviation, affecting the growth of service consumption [4][5]. - Urbanization levels in China are lagging, with a current urbanization rate of about 67%, compared to 70%-80% in OECD countries at a similar development stage [5][6]. - The significant income disparity, with a Gini coefficient above 0.45, limits the consumption capacity of lower-income groups, while the middle-income group is not large enough to drive demand [6][7]. - The characteristics of the government’s balance sheet, with a high proportion of government wealth compared to total societal wealth, contribute to high savings rates and low consumption [6][8]. Group 2: Solutions to Consumption Insufficiency - Addressing consumption insufficiency requires a focus on service consumption, particularly in education, healthcare, housing, social security, and pensions [7][9]. - The structural issues stemming from the urban-rural divide must be addressed through reforms aimed at equal rights and urban-rural integration [7][9]. - The decline in real estate and infrastructure investment has exposed the underlying structural consumption issues, necessitating urgent action to boost terminal demand [8][9]. Group 3: Specific Recommendations for Pension Reform - The government should prioritize pension reforms for rural residents, as they represent a significant portion of the low-income population with high consumption potential [11][12]. - Allocating a portion of stimulus funds to increase pension payouts could significantly enhance the consumption capacity of rural residents [12][13]. - Improving the pension contribution system, especially for migrant workers, is essential to increase their future consumption capabilities [15][16].