What global executives need to ask about China in 2026

By November, however, things had changed. China’s annual trade surplus exceeded US$1 trillion, a record high. GDP growth has stabilized at around 5%. The country appears to have moved beyond concerns about “deglobalization.”

What does the Year of the Horse 2026 mean to China? Headlines may focus on Trump’s tariffs or real estate woes, but there are more subtle trends afoot that will determine China’s economic trajectory. China poses new challenges to international businesses, particularly from assertive local rivals, but opportunities remain for disciplined global executives. As the world’s second-largest economy grapples with a rapidly changing global economy, five key questions will be critical.

How will tariff uncertainty affect your China strategy?

China has long dominated global manufacturing thanks to its cost competitiveness and integrated supply chains. Although the United States will increase tariffs in 2025, this advantage remains intact, and tariffs have currently stabilized at around 50%. The tariffs have done little to undermine China’s trade: China’s share of global merchandise exports has held steady at around 14%, four times the size of India and Vietnam combined.

The reason is that China has expanded its trading partners. Goods exports to the United States account for only 2-3% of China’s GDP, and more than half of China’s goods exports currently go to economies in the Global South, including ASEAN, Latin America, the Middle East and Africa.

China also exports more knowledge-intensive products, such as electronics and cars, and less labor-intensive products, such as furniture and toys.

Beijing has bought itself some time, but 2026 will be a test of how resilient China’s export economy is. Trade patterns will continue to change, according to one analysis McKinsey Global Institute suggests that by 2035, up to 30% of global trade could be transformed into corridors. The trade map is being redrawn in real time.

Multinational companies operating in China need supply chain flexibility to be able to restructure their operations as quickly as Chinese companies can.

Where are Chinese consumers spending their money, and what does this mean for global brands?

Before the outbreak, Chinese consumers were driving nearly double-digit growth in retail sales every year. Yet by 2025, consumer confidence has fallen to historic lows, youth unemployment is hovering around 15%, and real estate remains stagnant. However retail spending In the first three quarters of 2025, the year-on-year growth rate will be around 4-5%.

Chinese consumers continue to spend – just on different things. In the first three quarters of 2025, tourism expenditure will increase by 12%, and box office revenue will increase by 22%. Government subsidies supported double-digit growth in spending on electric vehicles and home appliances. However, discretionary spending is struggling.

The opportunity for executives is to tap into China’s vast household savings. Consumers are waiting for something worth buying, so the challenge will be to offer products and services that Chinese shoppers find truly worth pursuing. Competing on price alone won’t work; only a compelling value proposition can unlock these locked-in savings.

Can your business survive and thrive in China’s highly competitive market?

While Western countries are fighting inflation, China is battling deflationary pressures. 2025 has accelerated what the Chinese call “involution,” a fierce competition that has eroded profits across the industry. About 30% of large industrial companies reported losses, up from 20% before the epidemic.

But the period of “overcapacity” may be easing. Fixed asset investment slowed and then contracted, reflecting weaker spending in some industries. Rather than being a cause for concern, the decline in investment could be a sign that companies are exiting overexpansion, correcting years of overinvestment that has flooded markets and undermined pricing power. If this adjustment is enhanced with appropriate reforms, it could eventually stabilize profit margins.

Companies must now differentiate through technology, brand and service, not just price. Importantly, success in China will lead to competitive advantages elsewhere in the world. Otherwise, competition with Chinese players can be brutal – not just on their home turf, but increasingly also overseas.

Are you ready to face Chinese competitors overseas?

China has attracted foreign investment for decades. But last year, China became a growing source of investment. Announced foreign direct investment in China fell by about two-thirds on an annual basis between 2022 and 2025 compared with 2015-2019. Announcement on China’s Foreign Direct Investment It has stabilized at around $100 billion per year, but it has expanded from its traditional destination in emerging Asia to emerging markets such as Latin America, the Middle East and Europe.

Chinese companies are also becoming global cultural exporters. Bubble Mart’s LaBuBu dolls, the blockbuster film “Wukong” and Chinese electric car brands have attracted global audiences. This reflects the growing “soft power” of business as Chinese culture, lifestyle trends and consumer brands penetrate the market.

In 2026, a home match against Chinese rivals is expected. The markets of the Global South and their young and increasingly affluent populations are becoming increasingly important to Chinese companies, but Western economies still offer opportunities for price-competitive and culturally relevant Chinese brands. This is not a question of whether Chinese companies will come; it is a question of whether Chinese companies will come. The key is whether you’re ready to match their speed, cost and efficiency.

Will China’s artificial intelligence reshape productivity in China and elsewhere?

Before 2025, Silicon Valley seems to have an insurmountable lead over China in the field of artificial intelligence. What follows may be the biggest China story of the year: DeepSeek’s open-source AI model is shaking up the market and intensifying AI competition in China, the United States and around the world.

Even amid strict U.S. export controls and a moribund venture capital industry, China is now the leader in artificial intelligence. Major tech companies such as Alibaba have launched models to compete with the best in the United States, while a group of “little dragons” – smaller, nimble AI startups – have released innovative models of their own. China’s artificial intelligence performs strongly in LL.M. rankings

China’s innovation engine—rapid iteration, cost-effective scaling, massive engineering talent, and collaborative open source development—explains how China can lead in artificial intelligence.

But business impact is more important than technical performance. Can this AI capability translate into meaningful productivity gains?

McKinsey Global Institute analysis The report found that Chinese companies rank in the top ten in 16 of 18 industries that could drive up to one-third of GDP growth by 2040, with artificial intelligence playing an important driving role in many of these industries.

More meaningful signals may emerge next year as China continues to invest in AI use cases across manufacturing. In 2026, a new “DeepSeek moment” may occur in industry.

Looking to the future

At the beginning of 2026, China faces more severe risks: geopolitical uncertainty, troubled real estate industry, public finance constraints, and rising youth unemployment. Yet the factors that attract companies to China – scale, innovation and global reach – remain as compelling as ever.

The companies that win in China next year won’t be those with the best macroeconomic forecasts, but those that can win on the ground: build resilient supply chains, differentiate themselves from the competition, and leverage the country’s innovations.

For global businesses prepared to operate with this degree of discipline, China remains a lucrative market in the Year of the Horse.