China starts 2026 with greater confidence than 12 months earlier, when uncertainty over U.S. relations clouded both the economic and geopolitical outlook. While longer-term concerns over the potential impact of U.S.-China strategic competition will remain, a U.S.-China trade agreement will lead to a significant stabilizing of the bilateral relationship in the second half of the year.
The Chinese leadership believes that U.S. President Donald Trump’s desire for a landmark trade deal—not to mention the promise of a high-profile visit to Beijing in April—puts them in a strong position for future trade negotiations. Beijing’s dominance in rare earths processing and its growing technological superiority in key industries such as renewable energy, electric vehicles, advanced manufacturing and robotics will strengthen its confidence.
China is also more bullish on the geopolitical front. The Chinese leadership has adapted to a Trump administration that is upending the global status quo by dismantling historical alliances and launching military interventions as part of a foreign policy shift which appears to be increasingly imperialist in nature. By contrast, China will seek to bolster its global leadership credentials as a more rational, reasonable and respectful partner for countries in the Global South—and potentially the European Union, though deep-seated European reservations over China’s strategic intentions will complicate these efforts. China will continue to support globalization, build its profile through global institutions and look for opportunities to serve as a power broker in resolving violent conflicts or territorial disputes.
Within Asia, China will also assert itself more through institutions such as the Asia Pacific Economic Cooperation (APEC), a regional economic forum which is taking place in the southern Chinese city of Shenzhen this October. The theme, “Building an Asia-Pacific Community to Prosper Together,” reflects China’s efforts to strengthen regional integration in the face of U.S. foreign policy initiatives targeting historical U.S. allies such as Japan, South Korea and Southeast Asian countries.
Domestic Priorities
While China is optimistic about progress on the global stage, it will continue to face significant economic challenges at home. Persistently weak consumer sentiment reflects high youth unemployment,widespread concerns over job security, a collapse in the property sector and the need for households to save for health care, schooling and care of the elderly. Deflationary pressures add to the challenge as consumers hold off making purchases in anticipation of further price cuts. A trade deal with the United States this year will go some way to restoring confidence to the Chinese economy, but more comprehensive practical measures to address consumer concerns must be implemented to bring about the kind of change needed.
As well as pushing a more positive economic narrative, the Chinese leadership faces a significant year in terms of domestic politics in the run-up to a critical five-yearly leadership meeting in 2027. The 21st National Congress of the Chinese Communist Party, set to convene late next year, will approve a new Central Committee and an expected fourth term for Xi Jinping as General Secretary. In 2026, he will look to consolidate his political power and strengthen control over the military through continuing reforms and personnel changes. He will also want to show substantive progress in implementing key aspects (notably technological development) of the 15th Five-Year Plan, a national economic blueprint for 2026-2030 to be officially released in March.
Looking Ahead
The extent of China’s success in 2026 will depend in part on the United States. On the one hand, the second year of a Trump presidency is expected to bring further geopolitical turbulence as the United States pursues an increasingly aggressive foreign policy agenda in a bid to secure critical resources. Repeated incursions into Latin America or potentially Greenland will draw increasingly strident international criticism, pushing away historical U.S. allies and adversaries alike—with positive economic and/or political implications for China. On the other hand, the Trump administration will be looking to persuade U.S.voters that the domestic economy is in good shape as mid-term elections approach towards the end of the year. A U.S.-China trade agreement would provide a positive headline for President Trump—and would also help China’s economic and political priorities.
Both sides appear determined to keep broader foreign policy tensions from disturbing their trade détente. Assuming this trend holds, 2026 should see relative calm in the U.S.-China relationship. However, the Chinese leadership understands that the realities of strategic competition and the deficit in mutual trust make it inevitable that any truce will not last. It will therefore continue to assert itself as a global power on the world stage while accelerating moves towards technological self-sufficiency at home. For multinational companies operating in China and the wider Asia region, the challenge will be to remain nimble in the face of fast-changing developments and an increasingly uncertain and febrile geopolitical environment.
