China Faces Sharp Decline in Consumer Spending to Start 2026

China’s consumer spending has recorded one of its weakest starts to a year outside the pandemic, underscoring the challenges for a government aiming to boost domestic demand. Retail sales for January and February 2026 are projected to increase by just 2.1% compared to the same period in 2025, based on the median forecast from economists surveyed by Bloomberg. This figure marks the lowest reading since the data series began in 2000, excluding the dramatic decline observed in early 2020 due to COVID-19.

Industrial production has shown some resilience, expanding by 5% during the same period. This growth, however, represents a slowdown from the 5.9% pace recorded at the beginning of 2025, indicating a mixed economic landscape where foreign demand remains strong but domestic consumption falters.

Investment and Economic Outlook

Another critical indicator, fixed asset investment, is expected to continue its downward trend. Forecasts suggest a decrease of 4.2% compared to the previous year, with property investment alone likely contracting by 19.3%. Should these predictions hold, the preliminary data for 2026 would reflect a further decline in domestic demand, contrary to government pledges to prioritize its recovery.

Economists from ING Bank NV, led by Deepali Bhargava, noted, “Policymakers have signaled the importance of domestic demand this year. But it will likely take time for data to show the economy starting to recover.” As the international geopolitical environment shifts, the Chinese government has yet to indicate a change in its economic strategy, despite recent global upheavals.

Challenges Ahead for Policymakers

China’s authorities recently adjusted their fiscal stimulus plans for 2026, lowering the annual growth target to between 4.5% and 5%—the least ambitious goal since 1991. This cautious approach aims to manage an already substantial debt load while exploring new avenues to stimulate consumption.

Economists from Nomura Holdings Inc., led by Ting Lu, highlighted the pressing need for export growth to counterbalance the struggles of the property market. They cautioned that the current trade imbalance is unlikely to be sustainable, posing a dilemma for Chinese authorities.

Despite the urgent need for renewed consumer spending, no significant new measures have been introduced. The increase in minimum benefits for a major public pension program remained unchanged from last year, contrary to some economists’ expectations for a substantial hike to encourage spending. Additionally, subsidies for a key consumer trade-in program were reduced from 300 billion yuan (approximately $36.3 billion) to 250 billion yuan this year, further complicating recovery efforts.

In February, the China Association of Automobile Manufacturers reported a 15% drop in car sales, reflecting the impact of reduced trade-in subsidies and tax breaks for new energy vehicles. Analysts warn that without “new, meaningful policy support,” retail sales growth in China could plummet to as low as 1.7% this year—the lowest level since the pandemic.

The general consensus among economists is a more optimistic 4% annual rise in retail sales. However, the strong export performance in the early months of 2026 may lessen the immediate pressure on policymakers to invigorate domestic demand.

As China navigates these economic challenges, the government’s ability to stimulate consumption and manage external pressures will be critical to the nation’s economic health and stability in the coming year.