UBS China Economic Comment: Continuation of Strategic Stability
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UBS expects China to maintain its strategic stability policy framework without major directional shifts in the near term. The 2026 GDP growth target will likely remain around 5%, consistent with 2025. Fiscal policy is projected to become slightly more accommodative, with the deficit ratio expanding from 3% to 3.5%, alongside an increase in special-purpose bond quotas to RMB 4 trillion.
Monetary policy will remain accommodative. The seven-day reverse repo rate is expected to hold at 1.7%, with the Loan Prime Rate remaining stable and credit growth near 10%. UBS forecasts the yuan to trade between 7.2 and 7.4 against the US dollar, with the central bank utilizing counter-cyclical factors to anchor expectations. Inflation pressures remain mild, with CPI and PPI growth projected at 1.5% and 0.5%, respectively.
Structurally, consumption is supported by improving employment, with retail sales growing 5.5%. Infrastructure and manufacturing investment should grow 8% and 6%, while property investment contracts 3%. Property policy will continue to provide a floor without aggressive stimulus. Export growth is expected to slow to 3%. Structural reforms will proceed at a measured pace. Key monitoring points include the March parliamentary sessions for official GDP and deficit targets, alongside US-China trade developments.