NextFin News -- China faces an uphill battle to keep its GDP growth above 4% in 2027 as exports slow, property downturn deepens and deflationary pressures return, Citi Securities said in a research article to its clients.
In a China macroeconomic outlook report published Oct. 7, Citi forecast China’s real GDP growth would slow to 4.6% in 2026 and further to 4.1% in 2027.
The bank said a combination of slower economic growth, rising unemployment, a widening fiscal gap and renewed deflationary pressures could bring a policy pivot similar to the sweeping measures unveiled in September 2024, known as the “9.24” policy package, which is likely to become unavoidable in 2027.
Citi said China’s three main economic headwinds are a slowing export engine, an increasingly severe drag from the property market and weak market confidence that is prompting households and companies to accelerate deleveraging.
Export Engine Faces a Slowdown
Net exports have made an unmistakable contribution to China’s economic growth over the past three years. In the first eight months of 2026, exports of artificial-intelligence-related products accounted for 27.4% of China’s total exports and rose 50.9% from a year earlier, Citi said.
But the bank expects global AI capital expenditure growth to peak at 106% in 2026 before slowing to 56% in 2027.
At the same time, trade in non-AI products, which is more sensitive to interest rates and prices, is facing a high-interest-rate environment and uncertainty over energy costs. If global economic resilience fades, external demand for Chinese goods would come under additional pressure, Citigroup said.
The bank expects the property sector to become an even greater drag on growth in 2027.
China’s ongoing reform to promote the sale of completed homes could help major cities with supply shortages stabilize home prices in the short term, Citigroup said. But the reform could also extend the inventory-clearing period for new homes from the previous six to 10 months to as long as 1.5 to 2.5 years.
Citigroup expects property development investment to fall 20% in 2026 and decline a further 30% in 2027.
Even before the completed-home sales reform is implemented, land-sale revenue had already fallen 28.6% from a year earlier in the first eight months of 2026, the bank said. It expects land-sale revenue to fall by a further roughly 1 trillion yuan after the housing-sales reform.
To address widening fiscal gaps, authorities are also strengthening revenue collection across the board, from offshore trust taxation to social-security contributions, Citigroup said.
Property Outlook Divides Economists
Market views on China’s property sector remain divided.
Ding Meng, chief economist at China CITIC Bank International, said a series of new policies supporting the property market from both the supply and demand sides could begin to take effect, including reforms to promote sales of completed homes and interest-subsidy policies.
He expects the property recovery in China’s first-tier cities to continue into 2027 and gradually spread to second- and third-tier cities. As housing inventories decline substantially, overall market confidence could recover over the next two to three years, helping improve domestic consumption, he said.
“Given the restrictions on total home prices and loan standards, most properties in first-tier cities will not fall within the scope of the current interest-subsidy policy. The policy is focused on second- and third-tier cities,” Ding said.
China CITIC Bank International expects China’s economy to grow about 4.8% in 2026 and maintain roughly the same pace in 2027.
Ding nevertheless cautioned that China’s economy currently relies heavily on external demand, particularly given the significant contribution of goods exports to the current account. Disputes between Europe and the U.S. over China’s trade surplus are a risk worth monitoring, he said, adding that any change in goods exports should be regarded as a warning signal.
Weak Confidence Raises Deleveraging Risks
Citi identified weak market confidence and accelerated deleveraging as another major drag on growth.
Household consumption confidence in China has remained depressed since 2022, the bank said, adding that the longer the weakness persists, the harder it becomes to reverse. As the stimulus effect from the consumer-goods trade-in program fades, retail sales growth in 2026 is expected to be close to zero.
Households and companies are simultaneously shrinking their balance sheets.
In the first eight months of 2026, households made net loan repayments of about 1 trillion yuan. The household savings rate remained at a high 40.0% in the first half of the year, compared with 36.4% in the first half of 2019, before the pandemic.
Among companies, long-term corporate loans, including bond financing, were at a five-year low. Private-sector fixed-asset investment fell 10.1% from a year earlier since the beginning of 2026, while non-private-sector fixed-asset investment declined 3.8%, reflecting a slowdown in new capital spending by both state-owned and private companies, Citigroup said.
Citi said keeping growth above 4% is particularly important because, apart from the Covid-19 pandemic period, China has rarely lowered its GDP growth target by 0.5 percentage point for two consecutive years.
The country’s 15th Five-Year Plan also reaffirmed the goal of doubling per-capita GDP by 2035 from its 2020 level. That implies average annual economic growth of 4.17% between 2026 and 2035, Citigroup said.
Deflation Could Trigger Policy Pivot
Deflation is another concern.
Citi estimates that after excluding energy, chemicals and AI-related industries, underlying inflation reflected in China’s producer-price index is relatively modest, at around 2%.
If oil prices return to the bank’s forecast 2027 Brent crude midpoint of $66 a barrel, however, PPI growth could fall back into negative territory.
Citi expects China’s PPI inflation to plunge from 2.8% in 2026 to 0.4% in 2027. Consumer-price inflation is forecast to fall from 1.0% to 0.6%, while the GDP deflator is expected to decline from 1.7% to 0.5%.
A renewed weakening in nominal economic growth would further erode corporate profits, government revenue and debt-servicing capacity, creating additional pressure for a policy shift, the bank said.
The team led by Xiangrong Yu, Citigroup’s chief China economist, compared the potential policy turning point triggered by the need to “preserve 4%” growth with the series of major financial and economic stimulus measures unveiled in September 2024. The latter is generally viewed as a policy response aimed at “preserving 5%” growth.
Citigroup expects the broad fiscal deficit to increase by about 2 trillion yuan, including 1 trillion yuan in general-budget funds and an additional 500 billion yuan each in central government bonds and local-government special bonds.
The additional fiscal support would partly offset the roughly 1 trillion yuan decline in land-sale revenue expected after the housing-sales reform, the bank said.
Traditional policy tools such as consumer trade-in programs and interest subsidies are showing diminishing marginal returns, while the scope for further boosting durable-goods consumption is limited, Citigroup said. It is therefore time to introduce more direct transfers to households, with the next round of policy support potentially focused on social security and consumer services.
On monetary policy, Citigroup expects no change in 2026, followed by two 10-basis-point interest-rate cuts and a 50-basis-point reserve-requirement-ratio cut in 2027.
Technology Becomes the New Investment Theme
Despite the near-term challenges, Citigroup said China’s investment focus has shifted from consumption upgrading toward technological upgrading.
After weathering tariff barriers, the Covid-19 pandemic and energy shocks, China’s manufacturing sector has become more resilient, the bank said. Technology and innovation, or “new quality productive forces,” are expected to drive the next phase of industrial upgrading.
With its industrial ecosystem, infrastructure, talent pool and policy support, China has the potential to become a major global “AI+ economy” hub spanning both large AI models and hardware, Citigroup said.
The bank compared the potential transformation with China’s earlier reshaping of global manufacturing supply chains, from textiles to automobiles.
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