CNBC’s The China Connection publication: Three financial flashpoints for 2026

This report is from this week’s CNBC’s The China Connection publication, which brings you insights and evaluation on what’s driving the world’s second-largest financial system. You possibly can subscribe right here.

China is closing out 2025 with way more confidence on the world stage than initially of the yr.

It was the primary main financial system to retaliate in opposition to U.S. “Liberation Day” tariffs, and has more and more performed the uncommon earths card. Its tech firms overcame U.S. chip restrictions and launched low-cost synthetic intelligence fashions that rival far pricier choices from the U.S., corresponding to these from OpenAI. International perceptions of China are enhancing.

Whether or not the broader Chinese language financial system exudes the identical stage of confidence is much less clear.

The nation’s prime leaders are anticipated to debate coverage plans for 2026 on the annual “Central Financial Work Convention” subsequent week. Whereas no dates have been formally launched, the convention ran from Dec. 11 to 12 final yr.

Listed below are three key drags economists are watching:

China’s actual property woes worsened this yr on many fronts, with the newest centering on property large Vanke‘s monetary struggles.

As soon as considered one of China’s largest builders by gross sales and an iconic native model, Vanke is searching for to delay compensation of a 2 billion yuan ($283 million) onshore bond due Dec. 15. That information prompted S&P International Rankings to downgrade Vanke’s debt late final week.

“Homebuyers’ confidence in China has already been fairly fragile, so if [Vanke has to pursue distressed financing] that would in all probability hit sentiment additional,” stated Edward Chan, director, company scores at S&P International Rankings.

“That will additionally drag property gross sales nationwide,” he stated. He added {that a} mortgage subsidy plan reportedly beneath dialogue is unlikely to reverse the slide in property gross sales.

Goldman Sachs stated over the weekend that new residence gross sales in November fell by 20% to 30% from a yr in the past. “In our view, the chances of one other batch of property easing measures being launched have elevated,” the analysts stated.

However how unhealthy is simply too unhealthy?

As of October, common month-to-month gross sales nationwide had been nonetheless 65.3 billion yuan beneath their 2024 ranges, Chan famous.

“It is tough to gauge now at what stage the federal government goes to suppose is a stage for broader concern.”

Beijing clearly has different issues on its thoughts.

After a five-year planning assembly in late October, policymakers signaled higher resolve to increase home consumption. That was simply days earlier than senior leaders, together with Chinese language President Xi Jinping, left Beijing for high-level commerce talks with the U.S. and different international locations.

Final week, six ministries collectively launched a sweeping plan to develop client industries starting from electronics to sporting items. At the very least three sectors must be price 1 trillion yuan every by 2027, and one other 10 ought to attain 100 billion yuan throughout the identical interval, the doc stated. The plan, nonetheless, did not specify how.

“Funding preparations and implementation particulars are missing,” Goldman Sachs analysts stated in a report over the weekend, whereas noting a transparent emphasis on integrating AI into client product growth and providers.

“General, this plan focuses totally on the provision facet,” the analysts stated, “and we proceed to consider sustained consumption development would require coverage assist for job creation and earnings beneficial properties.”

Of concern, the unhealthy mortgage ratio for households in China reached 1.33% within the first half of this yr, exceeding the company ratio, which declined to 1.2%, in response to Natixis.

Companies can restructure, however households have far fewer choices, stated Natixis senior economist Gary Ng, particularly amid ongoing stress from the true property and labor markets.

Because the pandemic, Chinese language shoppers have grow to be more and more price-conscious, whereas firms have ramped up competitors for his or her wallets by way of worth cuts.

Even with prolonged promotions operating from early October to mid-November, China’s greatest buying occasion of the yr noticed gross sales development sluggish to 14.2% from 26.6% final yr, in response to third-party evaluation.

Headline inflation has hovered near zero in current months. However a far higher 1.2% improve within the “core” CPI, which excludes meals and power costs, is hardly reassuring both.

Nomura’s Chief China Economist Ting Lu estimated final week that roughly 1 / 4 of these inflation beneficial properties got here from the surge in gold costs, in response to his evaluation of official figures. Strip that out, and core CPI was simply 0.9% in October, he stated.

Lu expects Beijing to step up coverage assist within the spring to get the nation’s upcoming five-year plan off to a strong begin.

China is about to launch November inflation information on Dec. 10, adopted by retail gross sales, industrial manufacturing and funding figures on Dec. 15.

Charlene Chu, a macrofinancial senior analyst for China at Autonomous Analysis, stated that persistent deflation has discouraged extra Chinese language firms from investing domestically, fearing they can’t generate a return.

Kerry Mok, President and CEO of SATS, which derives greater than half of its income from air cargo, stated that China’s total commerce has grown, whereas e-commerce gross sales within the U.S. fell due to the removing of the “de minimis” rule.

Jacqueline Du, head of China industrial tech analysis at Goldman Sachs, stated there’s demand for humanoid robots even when they don’t seem to be but extremely helpful, and firms within the provide chain are optimistic.

Humanoid robotic bubble? China’s financial company spokesperson warned Friday of a glut in humanoid robots as greater than 150 firms rush into the sector. The company plans to launch trade tips.

Alibaba launches AI glasses. On the heels of an AI app revamp, the Chinese language e-commerce large kicked off gross sales of its good frames on Thursday for $500 in China, a market the place the Meta Ray-Ban Show glasses usually are not formally accessible.

Hong Kong hearth attracts donors. Main Chinese language firms from Tencent to Alibaba-affiliate Ant Group pledged thousands and thousands to assist rescue efforts following the deadliest Hong Kong hearth since 1948 final week. At the very least 156 individuals have died.

China’s CSI 300 was flat as of 12 p.m. native time Wednesday. The benchmark is up 0.65% this week and is on observe for a second straight weekly achieve. It has climbed 15.73% thus far this yr.

Hong Kong’s Hold Seng Index fell 0.9% at midday. It’s unchanged for the week and has superior 28.85% since January.

The offshore yuan final traded at 7.0609 in opposition to the greenback, its strongest stage since October 2024.

— Nur Hikmah Md Ali

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

Dec. 8: China commerce information for Nov

Dec. 10: CPI, PPI for Nov