BEIJING: China’s economic growth forecast for 2026 has been raised, as strong high-tech exports partly offset continued weakness in domestic consumption and investment.
- AI-related exports support growth; China vulnerable to downside risk
- Property downturn continues to restrain consumption, investment
- Ageing population, weak domestic demand to weigh on growth trajectory
The World Bank expects China’s gross domestic product (GDP) to grow by 4.5% in 2026, up from 4.2% in its June forecast, the organization said in its October 2026 East Asia and Pacific Economic Update published on 6 October.
China’s GDP growth is projected to moderate to 4.3% in 2027 and 4.2% in 2028, the organization said.
China is also part of the developing East Asia and the Pacific (EAP) region, whose GDP growth forecast was raised to 4.5% from 4.2% in 2026 by the World Bank in the same report.
DOMESTIC GROWTH LOSES MOMENTUM
China’s GDP growth slowed to 4.3% year on year in the second quarter of 2026 from 5.0% in the first quarter, marking its weakest quarterly expansion since the fourth quarter of 2022, the World Bank said.Retail sales contracted by an average of 4.0% year on year in April-July, partly as the effects of government subsidies for consumer goods, which began in March 2024, were fading, according to the report.
The World Bank said weak consumption prevented companies from fully passing higher costs on to consumers. In April-July, consumer price inflation averaged 1.0% year on year.
Investment growth also slowed as higher energy costs affected energy-intensive sectors, although the impact of the energy shock was partly mitigated by the drawdown of China’s oil reserves, alongside its high share of renewable energy, as well as temporary limits on gasoline price increases, the World Bank said.
Consumption and investment are expected to be constrained by a soft labor market, the continuing property-sector adjustment, and low corporate profitability in some sectors, it said.
Over the medium term, an ageing population, high debt, and diminishing returns on capital are expected to weigh on China’s growth trajectory, according to the World Bank.
HIGH-TECH EXPORTS PROVIDE SUPPORT
China’s exports rose by 21.1% year on year in April-July as shipments of high-tech products – including goods related to artificial intelligence (AI), electric vehicles, and green industries – surged, the World Bank said.
Weak domestic demand limited import growth outside technology-related inputs, which helped China record a current-account surplus equivalent to 3.7% of GDP in the second quarter, according to the report.
The World Bank said China was the largest supplier of AI-related goods among the major east Asian economies included in its analysis, exporting $785 billion of such products from May 2025 to April 2026.
Intermediate inputs, which are used to manufacture finished products, accounted for nearly three quarters of China’s AI-related exports, with much of the material supplied to other southeast Asian countries, it added.
PROPERTY CORRECTION REMAINS A DRAG
China’s prolonged property-market correction continued to weigh on domestic demand and local government finances, with real estate investment falling by 18% year on year in the first half of 2026 while housing sales were about two-fifths of their peak levels, the World Bank said.
Real house prices remained around 23% below their 2021 peak, while declining land-lease revenue weakened local government finances and prompted reductions in capital expenditure, the organization added.
China’s consolidated fiscal deficit narrowed to 3.2% of GDP in the first seven months of 2026 from 4.0% a year earlier amid the government reducing capital spending, the World Bank said.
The prolonged property-sector adjustment is expected to continue weighing on consumption and investment, it said.
RELIANCE ON AI TRADE PRESENTS RISK
The World Bank identified a possible reversal in global AI-related activity as a downside risk to east Asian growth, which could affect upstream suppliers such as China indirectly through weaker demand from the manufacturers they supply.
Rapid growth in global AI investment has been supported by abundant liquidity but could slow following a tightening in financial conditions, the World Bank said.
Investment could also weaken if corporate cash flows failed to meet expectations or if greater competition reduced expected profitability, it added.
Source: ICIS
