Three economic flashpoints for 2026

This report is from this week’s CNBC’s The China Connection newsletter, which brings you insights and analysis on what’s driving the world’s second-largest economy. You can subscribe here.

It was the first major economy to retaliate against U.S. “Liberation Day” tariffs, and has increasingly played the rare earths card. Its tech companies overcame U.S. chip restrictions and released low-cost artificial intelligence models that rival far pricier offerings from the U.S., such as those from OpenAI. Global perceptions of China are improving.

Whether the broader Chinese economy exudes the same level of confidence is less clear.

The country’s top leaders are expected to discuss policy plans for 2026 at the annual “Central Economic Work Conference” next week. While no dates have been officially released, the conference ran from Dec. 11 to 12 last year.

Here are three key drags economists are watching:

China’s real estate woes worsened this year on many fronts, with the latest centering on property giant Vanke‘s financial struggles.

Once one of China’s largest developers by sales and an iconic local brand, Vanke is seeking to delay repayment of a 2 billion yuan ($283 million) onshore bond due Dec. 15. That news prompted S&P Global Ratings to downgrade Vanke’s debt late last week.

“Homebuyers’ confidence in China has already been quite fragile, so if [Vanke has to pursue distressed financing] that could probably hit sentiment further,” said Edward Chan, director, corporate ratings at S&P Global Ratings.

“That may also drag property sales nationwide,” he said. He added that a mortgage subsidy plan reportedly under discussion is unlikely to reverse the slide in property sales.

Goldman Sachs said over the weekend that new home sales in November fell by 20% to 30% from a year ago. “In our view, the odds of another batch of property easing measures being introduced have increased,” the analysts said.

But how bad is too bad?

As of October, average monthly sales nationwide were still 65.3 billion yuan below their 2024 levels, Chan noted.

“It’s difficult to gauge now at what level the government is going to think is a level for broader concern.”

After a five-year planning meeting in late October, policymakers signaled greater resolve to boost domestic consumption. That was just days before senior leaders, including Chinese President Xi Jinping, left Beijing for high-level trade talks with the U.S. and other countries.

Last week, six ministries jointly released a sweeping plan to develop consumer industries ranging from electronics to sporting goods. At least three sectors should be worth 1 trillion yuan each by 2027, and another 10 should…