China’s economy is projected to expand by 4.5% in both 2026 and 2027, supported by resilient exports and fiscal stimulus, although weak household spending and prolonged property market pressures remain key challenges, according to the ASEAN+3 Macroeconomic Research Office (AMRO).
In its preliminary assessment following an annual consultation visit to China from Aug 31 to Sept 11, AMRO said the world’s second-largest economy has remained resilient despite significant external shocks, supported by a strong industrial base, diversified energy sources and the global artificial intelligence (AI) investment cycle.
China’s gross domestic product (GDP) expanded 5% year-on-year in the first quarter of 2026 before moderating to 4.3% in the second quarter amid energy supply disruptions associated with the Middle East conflict.
For the first half of the year, GDP growth averaged 4.7%.
AMRO expects headline consumer price inflation to remain subdued at 0.8% in 2026 before rising slightly to 1% in 2027.
AMRO Group Head and Lead Economist Jae Young Lee said China’s economic resilience has been supported by strong energy buffers, its industrial capabilities and continued global demand for AI-related products.
However, he stressed that more decisive policy action was needed to address structural challenges and strengthen domestic consumption.
The research office noted that private consumption remains subdued as weak employment prospects and prolonged property market pressures weigh on household confidence and spending.
The property market recovery is also expected to remain uneven, with signs of improvement in first-tier and some second-tier cities, while lower-tier cities continue to face substantial inventories of unsold homes.
AMRO expects accelerated fiscal spending to support economic activity in the second half of 2026, while monetary and financial conditions are likely to remain accommodative.
AMRO cautioned that China’s near-term economic risks remain tilted to the downside, particularly from geopolitical developments and external trade uncertainties.
A prolonged or renewed escalation of the Middle East conflict could increase energy costs and weaken China’s terms of trade.
Renewed trade and technology tensions with the United States, alongside growing trade frictions with the European Union, could also disrupt supply chains and constrain exports.
Another significant risk is a potential slowdown in global AI-related investment, which has supported Chinese exports of electronics and power equipment.
Domestically, a prolonged property sector adjustment could further weaken construction activity, household spending and confidence, while increasing credit risks for property developers and financial institutions.
To sustain economic growth, AMRO recommended that China gradually shift its fiscal support away from investment-heavy measures and durable goods subsidies towards public services, social protection and targeted household income assistance.
It said approved fiscal spending and government bond proceeds should be deployed promptly to support economic activity.
A greater central government role in spending could also help ease fiscal pressures on local governments, while structural reforms should improve the alignment between local revenue sources and expenditure responsibilities.
AMRO also called for greater transparency in government debt and reforms to complement China’s existing local government debt-swap programme.
On monetary policy, it recommended maintaining accommodative conditions, with further easing if economic conditions deteriorate.
Small and medium-sized banks with substantial non-performing loans should be restructured, recapitalised or consolidated where necessary to strengthen financial stability.
For the property sector, AMRO recommended differentiated measures based on local market conditions, including reducing unsold housing inventories in lower-tier cities and ensuring the timely completion of residential developments to restore homebuyer confidence.
The research office also urged China to strengthen employment support for young and displaced workers, improve social insurance coverage and accelerate structural reforms that promote more efficient resource allocation.
It added that continued trade diversification, high-quality outward investment and deeper capital market reforms would help China reduce its exposure to protectionist pressures and build a more balanced economic growth model.
AMRO said addressing these structural challenges would be essential to reducing China’s reliance on exports and investment while strengthening household consumption as a more sustainable driver of future growth.
