China’s economic engine is slowing down

According to the Sedaye Sama News Agency, The main concern is a decline in private consumption following the surge in 2025, driven by a broad durable goods replacement program. Inspired by post-global financial crisis scrappage schemes, the government offered subsidies of up to 2,000 yuan for the purchase of new household appliances and electronics—a program so successful that its budget ran out ahead of schedule in some provinces, resulting in a significant sales surge.

However, this very boom now poses a threat for the next year. Much of the demand that would normally have occurred in 2026 has already been “brought forward,” meaning natural demand will decline in the coming months. Consumers who replaced their refrigerators or mobile phones in 2025 have little incentive to buy again. Consequently, retail sales are expected to fall even below pre-subsidy levels, forcing the government to extend the program once more—though such an extension alone is unlikely to prevent the slowdown in consumption growth.

Lower consumption is likely to push Chinese companies back toward foreign markets, a path that could intensify trade pressures. The temporary agreement reached between China and the United States in South Korea in autumn 2025 remains fragile, and a resurgence of the trade war remains possible.

Nevertheless, China has, in recent years, found alternative markets to offset the decline in exports to the U.S., and if pressures intensify, it can use financial stimulus tools to maintain production levels. From this perspective, trade tensions are unlikely to fully derail China’s growth, although they will influence its trajectory.

The real estate market, the third key factor, remains in a prolonged slump. Government promises to prevent a price collapse raised expectations for a stronger bailout, yet these promises have so far failed to materialize. Consequently, hopes for further improvement are increasingly based on fundamental market changes rather than policy intervention.

Falling prices and rising incomes have reduced the price-to-income ratio, which was about 7.6 in 2021, to approximately 6.3 by mid-2025. At the same time, a large group of households that had delayed purchases for years are now less willing to wait. Even if part of this group refrains from buying, rising rental demand may signal a gradual exit from the market slump.

The combination of these three trends indicates that China’s economy in 2026 will experience a notable slowdown but is not on the verge of collapse. Consumption is weakening, trade tensions persist but do not stop growth, and the real estate market shows only a limited potential for recovery. The overall picture is of an economy losing momentum while remaining on track.

source: donyaye eghtesad