Concerns over China’s economic challenges have been rife in recent years. The Chinese economy grew at its slowest annual pace in a year during the July-September quarter, growing 4.8%, in line with market expectations, as quoted on CNBC. The slowdown was caused by trade tensions with the United States and weak domestic demand.
This marks the weakest quarterly growth since the third quarter of 2024 compared with 5.2% in the previous quarter, according to government data released on Oct. 20, 2025, per Associated Press, as quoted on Yahoo Finance.
Despite this weakness, VanEck ChiNext ETF CNXT surged 74.9% over the past year (as of Jan. 5, 2026) and has gained 1.5% from the start of this year till Jan. 6, 2026. iShares China Large-Cap ETF FXI has soared 32.6% over the past year and has edged down 0.5% from the start of this year till Jan. 6, 2026 (read: Top-Performing International ETFs of 2025).
Trade Tensions & Export Data
Despite higher U.S. tariffs imposed by President Donald Trump, China’s overall exports have remained resilient as companies found new markets abroad. In September, exports to the United States fell 27% year on year, while global exports climbed 8.3% — the fastest growth in six months.China's service activities expanded at its slowest clip in six months in December.
What Lies Ahead?
While China’s economy can meet its 5% growth target for 2025, supported by selective stimulus, weaker domestic demand, a struggling real estate sector and global uncertainties are negatives. The World Bank predicts China’s economy to expand 4.9% in 2025 and 4.4% in 2026.
S&P Global economists recently projected China’s GDP growth to slip in 2026. While pro-consumption policy stimulus is a plus, solid household savings and soft labor market conditions will likely continue to weigh on spending.
Will China Cut Rates to Boost Economy?
To boost a slowing economy, China may opt for a policy easing in the near term. China's central bank said this week that it will slash the reserve requirement ratio and interest rates in 2026 to keep liquidity sufficient, and support an easy money policy, as quoted on Reuters.
The idea is to boost domestic demand, improve supply and neutralize financial risks to support steady growth. In December, the central bank kept benchmark loan prime rates (LPRs) unchanged for the seventh successive month, in line with market expectations. Note that the economy has been facing deflationary pressure, which can be handled by monetary policy easing.
Bullish Goldman Sachs Forecast
Goldman Sachs expects Chinese equity benchmarks to extend their rally into another year, albeit at a more modest pace than in 2025, with earnings growth supported by advances in artificial intelligence and helpful policy measures, per Bloomberg, as quoted on Yahoo Finance.
Stronger Corporate Earnings Outlook
The strategists also upgraded their earnings outlook, projecting that corporate profit growth will accelerate to 14% in 2026 and 2027, up from an expected 4% in 2025, per Bloomberg, as quoted on Yahoo Finance.
Index Targets for 2026
The MSCI China Index is projected to rise 20% to 100 by the end of 2026 from its 2025 close. Meanwhile, the CSI 300 Index is forecast to rally 12% to 5,200, according to strategists led by Kinger Lau in a note released Wednesday, as quoted in the same article.
ETFs in Focus
Tech can be an interesting area for China investing. Invesco China Technology ETF CQQQ has advanced 45.3% over the past year and has gained 2.9% so far this year (as of Jan. 6, 2026).
iShares MSCI China Multisector Tech ETF TCHI has added 38.7% over the past year and has gained 1.1% so far this year. If the PBoC continues to deliver easy policy and domestic demand steps up, smaller-cap stocks could also gain. iShares MSCI China Small-Cap ETF ECNS has moved 37.2% northward and has inched up 2.8% so far this year. If we go by Goldman Sachs’ forecast, large-caps should also be better-positioned and FXI should be in focus.
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VanEck ChiNext ETF (CNXT): ETF Research Reports iShares China Large-Cap ETF (FXI): ETF Research Reports Invesco China Technology ETF (CQQQ): ETF Research Reports iShares MSCI China Small-Cap ETF (ECNS): ETF Research Reports iShares MSCI China Multisector Tech ETF (TCHI): ETF Research ReportsThis article originally published on Zacks Investment Research (zacks.com).
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