UBS strategist Peng highlights a gradual rebound in China's consumer sector, projecting retail sales growth of 5.8% year-on-year in 2026, supported by policy stimulus and pent-up demand. The outlook reflects cautious optimism amid ongoing challenges in household sentiment and regional disparities.
- Retail sales growth projected at 5.8% year-on-year in 2026
- Urban household consumption expenditure up 5.1% in Q4 2025
- Hotel occupancy in major cities reached 78% in December 2025
- Rural consumer spending grows at 3.6%, below national average
- Electric vehicle sales rose 9.4% year-on-year in December 2025
- Pinduoduo and JD.com reported double-digit revenue growth in Q4 2025
UBS economist Peng has issued a revised outlook for China’s consumer sector, signaling a steady recovery driven by targeted fiscal measures and improved consumption patterns in urban centers. Despite lingering concerns over deflationary pressures and uneven income growth, the analyst anticipates retail sales to expand by 5.8% in 2026, up from a projected 4.2% in 2025. This acceleration is attributed to the rollout of consumption vouchers in key cities like Guangzhou and Chengdu, which are expected to boost spending in durable goods and services by 7.3% in the first half of the year. The rebound is particularly evident in the services sector, where hotel occupancy rates in Tier-1 and Tier-2 cities reached 78% in December 2025, a 12-percentage-point increase from the previous year. Meanwhile, data from the National Bureau of Statistics indicates that urban household consumption expenditure grew by 5.1% in the final quarter of 2025, outpacing nominal income growth of 4.4%. This suggests a gradual restoration of consumer confidence, especially among younger demographics, who increased spending on travel and digital entertainment by 14% and 11%, respectively. However, rural and lower-tier urban areas continue to lag, with consumer spending growth averaging only 3.6% — below the national average. This regional divergence underscores structural challenges, including weaker job markets and limited access to credit. The government’s recent expansion of rural e-commerce infrastructure and rural consumer finance programs is expected to narrow this gap over the next 18 months. Market reactions have been mixed: Chinese consumer stocks, as tracked by the CSI 300 Consumer Index, rose 8.2% in early January 2026, while domestic auto sales rose 9.4% year-on-year in December, led by electric vehicle brands like BYD and NIO. Retailers with strong digital platforms, including Pinduoduo and JD.com, reported double-digit revenue growth in Q4 2025, reinforcing the shift toward online and value-driven consumption.