Navigating fundamental drags and policy drives for China’s manufacturing investment in 2026

Chinese manufacturing fixed investment shrank by 6.7% year-on-year in October, deepening the slump that began in July. We expect this decline to continue for most of H1 2026. The pace of recovery will depend on the policy support in the Fifteenth Five-Year Plan, which is expected to kick off a new wave of policy support for advanced manufacturing in Q2 2026, but the buoyant pace of growth seen in 2022 is unlikely to be repeated.

Policy priorities are centred on industrial upgrading and the green and digital transitions, positioning sectors such as electricals, precision instruments, and their upstream enablers in machinery and equipment as key beneficiaries.

The recent weakness partly reflects a natural retrenchment following the strong, sustained investment cycle driven by high-tech sectors from 2022 to mid-2025.

Capacity discipline—especially for traditional sectors—and deflation are two fundamental factors that will continue to dampen investment.

Overall, we expect the fundamentals driving manufacturing investment to remain a drag and recovery to depend on sectoral policy support. While the government is likely to place greater emphasis on consumption in the coming years, investment will still play a role in stabilising domestic demand and plugging the gap left by the ongoing slump in real estate investment. Political and geopolitical factors also make a continued focus on advanced manufacturing likely.