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China is preparing a major policy overhaul for the 2026-2030 period designed to tackle a fundamental imbalance in its economy: factory output is strong, but domestic demand is lagging. The country's state planner announced the new strategy will pivot toward boosting the services sector to supercharge household consumption.

According to the National Development and Reform Commission (NDRC), this shift is a direct response to a "prominent problem" facing the economy.

Diagnosing the Demand Deficit

While China’s economy hit its 5% growth target last year, the headline number masked a growing internal gap. The core issue lies in the mismatch between production and spending.

In 2025, industrial output expanded by 5.9%, but retail sales only grew by 3.7%. This divergence highlights an economy that is producing more than its citizens are consuming, a dynamic that has been propped up by a boom in exports—a strategy seen as increasingly difficult to sustain.

"The issue of having strong supply, but weak demand in the current economic operation is indeed a prominent problem," said Wang Changlin, vice head of the NDRC, at a recent press conference.

A Strategic Pivot to the Services Sector

To address this, Chinese leaders have pledged to "significantly" increase household consumption's share of the economy. The new strategy moves the spotlight from goods to services.

NDRC official Zhou Chen stated that the "services sector has now become a key focus in efforts to expand domestic demand." The government sees substantial room for growth in several key areas, including:

• Elderly care

• Healthcare

• Leisure and recreation

This marks a strategic shift in how Beijing plans to stimulate its domestic market over the next five years.

Continuity in Consumer Goods Subsidies

The new focus on services does not mean existing support for goods consumption will disappear. The government will continue to use policies like trade-in subsidies to encourage purchases of items such as electric vehicles (EVs) and home appliances.

For instance, in December, China deployed 62.5 billion yuan ($8.98 billion) from special treasury bond funds to support its 2026 consumer trade-in programs, demonstrating an ongoing commitment to stimulating spending on big-ticket goods alongside the new services-oriented push.

The United Kingdom and China have quietly established a new high-level forum for security officials to discuss cyberattacks, a significant development as relations remain strained by persistent hacking allegations.

According to sources familiar with the private agreement, the new "Cyber Dialogue" is designed to create a direct channel for managing national security threats, improving communication, and preventing miscalculations from escalating.

This marks the first time a single, dedicated mechanism exists for senior officials from both nations to address cyber incidents. Previously, establishing clear lines of communication on these sensitive issues was often a difficult process.

A New Channel for High-Stakes Talks

The primary goal of the dialogue is to allow for private discussions on deterrence measures and to help manage the fallout from cyber activities. The forum provides a structured way for London and Beijing to engage directly on security matters that have soured their relationship.

This initiative comes at a critical juncture. The UK government is expected to decide by January 20 on China's request to build a new super-embassy in London. Following that, Prime Minister Keir Starmer is scheduled to meet with President Xi Jinping in Beijing at the end of the month.

The UK government declined to comment on the matter, citing policy on security issues. China's embassy in London stated it was unaware of the agreement, and the Foreign Ministry in Beijing did not immediately respond to a request for comment.

Navigating Tense Diplomatic Waters

Since being elected 18 months ago, the Labour government has attempted to improve ties with Beijing. However, these efforts have been consistently undermined by British allegations of a near-constant Chinese cyber campaign targeting the UK's national infrastructure and government systems. Diplomatic relations were already under pressure due to the COVID-19 pandemic and China’s support for Russia's war in Ukraine.

Sources believe this new cyber forum is the first of its kind between China and any other country, highlighting it as a crucial step toward improving diplomatic engagement.

In November, China's top diplomat Wang Yi met with British National Security Adviser Jonathan Powell in Beijing. While the official statement from China did not mention cyber activities, it noted that the two had agreed to "confront and resolve issues" and "further enhance regular dialogues."

A Cautious Step Toward De-escalation

The creation of the forum follows reports that underscore the severity of the cyber threat. In October, Bloomberg reported that British officials believe Chinese hackers have been spying on UK government computer systems for over a decade. Officials have also indicated that state-backed actors from China have compromised critical infrastructure to a greater extent than has been publicly disclosed.

While the new dialogue is unlikely to halt these cyber operations entirely, insiders suggest it offers a valuable opportunity to mitigate the risk of a dangerous miscalculation between the two powers.

China has reversed its restrictions on Canadian canola, a policy shift that unblocks a major import channel and is set to increase the supply of livestock feed ingredients. This move reopens the Chinese market to its largest canola source and complements the recent resumption of US soybean imports and trial cargoes of Australian rapeseed.

By diversifying its sources for critical oilseeds, Beijing is bolstering its food security strategy. The increased competition among global suppliers is expected to drive down prices for essential feed components. This marks a notable change from recent years, where agricultural trade was often used as leverage in disputes with major partners.

The Return of Canadian Canola

The decision to ease tariffs on Canadian canola shipments follows a visit to Beijing by Prime Minister Mark Carney. This thaws a trade relationship that saw China impose duties on Canadian canola products and the crop itself in two separate rulings last year. Those measures were a response to Ottawa placing levies on Chinese electric vehicles, steel, and aluminum.

Pressure Mounts on Domestic Feed Prices

The wider availability of oilseeds is already weighing on domestic markets. Futures for soybean meal, a primary feed ingredient, closed on Monday 15% below their August peak. At the same time, rapeseed meal futures have fallen to a 16-month low.

With supply channels now fully open, the focus shifts to China's management of domestic consumption, particularly from its enormous hog herd.

The Demand Outlook: A Shrinking Hog Herd

While China’s pork production reached a record in 2025, pig numbers have begun to decline. This is a deliberate policy by Beijing to reduce excess capacity, support farm incomes, and combat downward price pressures in the economy.

The anticipated drop in feed demand is already being priced into the market. Forward contracts for soymeal are currently trading at a discount, reflecting traders' expectations for weaker consumption ahead.

This downtrend could be amplified if geopolitical commitments lead China to import more oilseeds than it needs. Beijing’s pledge to purchase at least 25 million tons of soybeans from the US annually for the next three years is a key factor. While lower feed costs will improve margins for livestock producers, they will also reinforce deflationary forces within the agricultural sector.

Other Key Economic Developments in China

Beyond agriculture, several other sectors are signaling major shifts in the Chinese economy.

Export Strategy and Trade Tensions

As President Xi Jinping confronts deflation and falling investment, his administration is betting on boosting exports to drive growth. In this context, threats made by Donald Trump against key US allies are seen as a potential opportunity for China. Meanwhile, China's rare-earth magnet exports to Japan in December eased from the previous month's record, with investors watching for any signs of Beijing restricting critical materials amid tensions with Tokyo.

Moves in the Commodities Sector

• Iron Ore: RBC Capital Markets noted that iron ore discounts from BHP Group, following pressure from China, are likely "optical, temporary and economically bounded" and do not signal a decline in the miner's pricing power.

• Copper & Mining Finance: Leading smelter Jiangxi Copper Co. announced plans to issue up to 25 billion yuan ($3.6 billion) in bonds to potentially fund mining expansion as prices rally. Separately, Chinese miner CMOC Group Ltd. raised $1.2 billion from a zero-coupon convertible bond sale.

Infrastructure and Energy Investment

State-owned China Southern Power Grid Co. intends to increase its annual spending to a record 180 billion yuan ($26 billion) this year. The investment is part of Beijing's broader push to modernize its electrical grids to handle the growth of renewable energy. According to Bloomberg Intelligence, China's 4 trillion-yuan grid upgrade plan for 2026-2030 will also drive a faster expansion of battery storage.

In other industrial news, reports indicate that China's long-running cement boom has definitively ended.

Rupee Weakness Intensifies Near Key Threshold

Flow-Driven Dollar Demand Takes Control

Central Bank Intervention Focused on Smoothing Volatility

Global Cues Offer Limited Relief

Foreign Outflows Add to Currency Strain

Source: Reuters

Market Holds Ground After Recent Decline

Oversupply Signals Dominate the Medium-Term Outlook

Currency Moves and Structure Offer Temporary Support

Localised Tightness Counters Broader Glut Narrative

Source: Bloomberg

The International Monetary Fund (IMF) has upgraded its economic growth forecast for Saudi Arabia for the third consecutive year, signaling renewed confidence in the Kingdom's economic trajectory.

In its January report, the IMF projected the Saudi economy will expand by 4.5% this year. This marks a notable increase from the 4% growth rate forecasted in its October 2025 outlook.

A Closer Look at the IMF's Upgrades

The positive revisions extend beyond the current year. The IMF also raised its 2025 growth forecast for Saudi Arabia to 4.3%, up from the previous 4% estimate. Looking ahead, the Fund anticipates the economy will grow by 3.6% next year, an improvement over the 3.2% projected in October.

This regional optimism is part of a broader global update, where the IMF also increased its worldwide growth forecast for 2026 to 3.3%, a 0.2 percentage point rise from its October assessment.

The IMF's projections closely align with those from Saudi Arabia's own Ministry of Finance, which forecasts growth of 4.6% this year, 3.7% in 2027, and 4.5% in 2028. This alignment underscores the realism of the ministry's financial planning.

Key Drivers Fueling Economic Momentum

The IMF attributes its optimistic forecast to two primary factors:

• A strong non-oil economy: Continued momentum in the Kingdom's diversified sectors provides a stable foundation for growth.

• An oil sector rebound: The expected easing of oil production limits under the OPEC+ agreement is set to boost the oil sector's contribution to GDP.

Consensus View from Global Institutions

Other major financial bodies share a similar outlook on Saudi Arabia's economy.

The World Bank projects the Saudi economy will grow by 4.3% this year and 4.4% in 2027. Its analysis points to a faster-than-expected increase in oil production in early 2025, complemented by robust and sustained growth in non-oil business activities.

Meanwhile, Fitch Ratings forecasts an even more robust 4.8% expansion for the Saudi economy in 2026. The ratings agency also expects the nation's deficit to narrow to 3.6% of GDP by the end of the year, driven by strengthening non-oil revenues and greater efficiency.