Our China 2026 outlook contains 28 predictions covering eight categories.
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Xi Jinping and the Chinese Communist Party ended 2025 with some cause for optimism in the new year. While fears of a renewed trade war with the United States flared up in the first half of the year following the return of Donald Trump to the White House, Beijing and Washington eventually reached a détente in South Korea in November. This bought Xi and the CCP some breathing space to focus on China’s growing domestic problems, including an economy in visible decline and never-ending corruption problems in the military and officialdom.
We believe that the political, economic, social, and external challenges facing Xi and the CCP are likely to further worsen in 2026. While some geopolitical developments appear to be shifting in Beijing’s favor, the CCP regime might not be able to capitalize on opportunities as it increasingly becomes preoccupied with purges and maintaining domestic stability.
We anticipate three trends in 2026:
- China’s domestic situation will continue to deteriorate on a broad front despite easing U.S.-China tensions.
- Deflationary pressures will persist in China, affecting the economy. China’s economy could be exposed to more severe and complex challenges if there are serious natural disasters, detrimental geopolitical developments, or Black Swan events in 2026. Regardless, Beijing will struggle to handle its mounting domestic challenges given the systemic deficiencies of the CCP authoritarian system.
- Amid shrinking foreign investment, the CCP will attempt to boost foreign-exchange earnings and attract tourists through offering visa-free entry to China and other policies. But the sustained real estate downturn, “involution” (“neijuan”) in the automotive sector and other areas, and automakers potentially running into “Evergrande-style” trouble, will weigh heavily on the economy.
- Underemployment will worsen in China. The number of people engaged in “flexible employment” will continue to rise, and even civil servants may face delayed or reduced wages. Meanwhile, public dissatisfaction with Xi Jinping’s governance will continue to intensify across society.
- The CCP may believe that “tremendous changes unseen in a century” are evolving in a direction favorable to itself.
- Debt problems around the world are becoming increasingly severe and unmanageable, while long-concealed truths previously covered up by governments are gradually being exposed, fueling growing public distrust of the authorities. At the same time, intensifying political polarization, concerns over unchecked migration, and a growing cultural divide in Western countries will reinforce the CCP’s perception that Western liberal democratic systems are in decline.
- The CCP could find opportunities in the development and advancement of artificial intelligence technology — including exploiting the market volatility in the event of a bursting “bubble” — to carve up market share and pave the way for the PRC’s future dominance.
- Xi and the CCP will focus on addressing domestic problems.
- Xi will continue to intensify “self-revolution” purges to root out disloyal elements and improve the CCP’s governing efficiency so that it may better resolve current crises and take advantage of “tremendous changes unseen in a century.” The “self-revolution” campaign, however, is not likely to help Xi fundamentally resolve structural issues impeding governing efficiency like bureaucratism, formalism, and corruption.
- Xi and the CCP will rely on heavy-handed and high-pressure measures to cope with domestic challenges.
Our China Outlook 2026 includes 28 forecasts across eight categories: Politics, economy, military affairs, society, Hong Kong, cross-Strait relations, Sino-U.S. relations, and China and the world.
