What global executives need to ask about China in 2026
2025 has been a turbulent year for China. The country began the year facing geopolitical headwinds and weak domestic demand. By April, new tariffs and trade frictions had sparked some of the most significant trade actions in decades.
But by November, the story had changed. China’s annual trade surplus exceeded $1 trillion, a record high. GDP growth remained steady at around 5%. The country appears to have ignored concerns about “de-globalisation”.
What does 2026, the Year of the Horse, hold for China? Headlines may focus on Trump’s tariffs or real estate woes, but there are more subtle trends occurring that will determine China’s economic path. China presents new challenges to international business, especially from confident local competitors, but there are still opportunities for disciplined global executives. There are five key questions that will be important as the world’s second-largest economy navigates a rapidly changing global economy.
How will tariff uncertainty shape your China strategy?
China has long dominated global manufacturing, thanks to its cost competitiveness and integrated supply chains. This strength remains intact despite higher US tariffs in 2025, which have now stabilized at around 50%. The tariffs have barely made a dent in Chinese trade: the country’s share of global goods exports has stabilized at around 14%, four times larger than India and Vietnam combined.
The reason is that China has already expanded the scope of its trading partners. Goods exports to the United States represent only 2% to 3% of China’s GDP, and more than half of China’s goods exports now go to economies of the Global South, including the Association of Southeast Asian Nations (ASEAN), Latin America, the Middle East, and Africa.
China also exports more knowledge-intensive goods, such as electronics and cars, and fewer labor-intensive goods, such as furniture and toys.
Beijing has bought itself some time, but 2026 will test the resilience of China’s export economy. Trade patterns will continue to shift, with one analysis by the McKinsey Global Institute suggesting that up to 30% of global trade could shift into corridors by 2035. The trade map is being redrawn in real time.
Multinational companies with a presence in China need supply chain flexibility, so they can revamp their operations as quickly as Chinese companies can.
Where are Chinese consumers spending, and what does it mean for global brands?
Before the pandemic, Chinese consumers were driving retail growth of more than 10% each year. However, in 2025, consumer confidence is at historic lows, youth unemployment rates hover around 15%, and real estate remains stagnant. However, retail spending grew by about 4-5% in the first three quarters of 2025 year-on-year.
Chinese consumers continue to spend, just on different things. Tourism spending rose 12% in the first three quarters of 2025, while box office revenues jumped 22%. government subsidies supported double-digit growth in spending on electric cars and home appliances. But discretionary spending has faced difficulties.
The opportunity for executives is to tap Chinese households’ huge savings. Consumers are waiting for something worth buying, so the challenge is to offer products and services that Chinese shoppers believe are truly worth pursuing. Competing on price alone will not work; Only a compelling value proposition will unlock these locked savings.
Can your company survive and thrive in China’s highly competitive market?
China faces deflationary pressures, even as the West fights inflation. 2025 has accelerated what the Chinese call “convolution,” intense competition that is eroding margins across the industry. Nearly 30% of major industrial companies reported losses, up from 20% before the pandemic.
But the period of “excess capacity” may be beginning to ease. Investment in fixed assets slowed, then contracted, reflecting weak spending in some sectors. Rather than being a cause for concern, falling investment may signal companies withdrawing from overexpansion, correcting years of overinvestment that flooded markets and destroyed pricing power. This adjustment, if reinforced by appropriate reforms, may ultimately lead to stabilization of margins.
Companies must now differentiate themselves through technology, brands and services, not just price. More importantly, success in China will lead to competitive advantage elsewhere in the world. Otherwise, competition with Chinese players could be very tough – not just on home soil, but increasingly abroad as well.
Are you ready to confront Chinese competitors abroad?
China has attracted foreign capital for decades. But in the past year, China has become a growing source of investment. FDI announcements in China between 2022 and 2025 fell by about two-thirds, compared to the period between 2015 and 2019 on an annual basis. China’s overseas FDI announcements have remained steady at around $100 billion annually, but have expanded beyond the traditional destination of emerging Asia to newer markets such as Latin America, the Middle East and Europe.
Chinese companies have also become global cultural exporters. Pop Mart statues Lapopo, the blockbuster Black Legend: Wukong, and Chinese electric vehicle brands have attracted global audiences. This reflects a growing form of commercial ‘soft power’, with Chinese culture, lifestyle trends and consumer brands penetrating the markets.
In 2026, expect to face Chinese rivals on your home turf. Global South markets, with their increasingly younger and wealthier populations, are becoming more important for Chinese companies, but Western economies still represent an opportunity for competitively priced and culturally relevant Chinese brands. It’s not a question of whether Chinese companies are coming; It comes down to whether you are ready to match their speed, cost and efficiency.
Will Chinese AI reshape productivity in China and beyond?
Before 2025, Silicon Valley appeared to be insurmountably outpacing China in AI. Then came perhaps the biggest Chinese story of the year: DeepSeek’s open-source AI model that shook markets and intensified AI competition in China, the United States and around the world.
China is now a leader in artificial intelligence, even with strict US export controls and a moribund venture capital sector. Big tech companies like Alibaba have rolled out models that compete with the best from the US, while a host of “little dragons” – smaller, agile AI startups – have launched their own innovative models. Chinese AI is now performing strongly on LLM’s leaderboards
China’s innovation drive – rapid iteration, cost-effective scale-up, significant engineering talent, and collaborative open-source development – explains how the country has been able to take the lead in AI.
But business impact is more important than technical performance. Will this AI capability translate into meaningful productivity gains?
The McKinsey Global Institute’s analysis finds that Chinese companies rank in the top 10 in 16 of 18 sectors that could drive up to a third of GDP growth by 2040, with artificial intelligence playing an important enabling role in many of them.
More significant signs may emerge next year, as China continues to invest in AI use cases across its manufacturing sector. Perhaps a new “DeepSeek moment” in the industry is a sure bet for 2026.
Looking forward
2026 begins with more acute risks for China: geopolitical uncertainty, a struggling real estate sector, fiscal pressures, and rising youth unemployment. However, what attracts companies to China – scale, innovation and global influence – remains as compelling as ever.
The companies that win in China next year will not be those with the best macroeconomic outlook, but those that can win on the ground: building resilient supply chains, differentiating themselves from the competition, and harnessing the country’s creativity.
For global companies willing to operate with this level of discipline, China can still remain a lucrative market in the Year of the Horse.
This story originally appeared on Fortune.com
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2026-01-11 23:00:00
