China’s evolving role drives capital shift amid steady global growth forecast for 2026

WASHINGTON, DC – According to the original report by the Institute of International Finance, headline global growth for 2026 is likely to look much the same as in 2025 , roughly 3.1% by the IIF’s reckoning , but that apparent steadiness masks a meaningful reconfiguration of capital flows and comparative advantage that will shape the decade ahead. The important story is not the aggregate growth number but where savings and investment are shifting, and why.

The IIF’s analysis shows the United States cooling after a strong post-pandemic run, while Europe and Japan have found firmer footing. China’s structural slowdown continues, yet India and a broader set of Asian economies are accelerating. Emerging-market growth, though still respectable at around the mid‑4% range in many estimates, now reflects a different composition: fewer returns to China as the primary absorber of global capital and greater flows toward economies with credible macro frameworks, resilient domestic demand, and expanding digital capabilities.

This rotation is visible in the data on nonresident flows. The IIF reports flows into emerging markets of roughly $1.18 trillion in 2025, tapering to an estimated $1.13 trillion in 2026 as temporary, bank-related and official financing eases. Industry data shows that, measured as a share of emerging‑market GDP, nonresident flows are set to fall from about 2.6% to 2.3% , below pre‑pandemic norms , but that aggregate softness largely reflects China’s diminished inward financing. Excluding China, many other emerging markets are absorbing capital at rates comparable to the mid‑2010s.

China’s evolving role lies at the heart of the rebalancing. The IIF notes that China remains a large source of external savings among emerging markets, with a current‑account surplus estimated in the high hundreds of billions of dollars, but the channels of recycling those savings are changing. Rather than accumulating them as central‑bank reserves, a growing share of Chinese savings is being deployed outward by firms, banks, and households, effectively making China a structural exporter of capital to Asia, Africa and the Middle East. The change helps explain why global reserve accumulation has not surged despite a softer dollar.

Other regional patterns are emerging alongside China’s transformation. Asia excluding China has become a major surplus centre: Vietnam continues to attract sustained foreign direct investment; India is financing its current‑account deficit relatively comfortably thanks to robust services exports; and economies such as South Korea and Malaysia are benefitting from a tech upturn and deep ICT services sectors. Commodity exporters, meanwhile, are redirecting resources toward domestic transformation , Saudi Arabia’s narrowing external surplus is one example , while several African countries are regaining market access as reforms bolster macro frameworks.

The technological dimension amplifies these shifts. Multiple institutional outlooks highlight the outsized role of AI‑related investment in recent GDP outturns and prospective capital spending. JPMorgan’s analysis points to a large jump in private AI infrastructure investment, and other financial houses report substantial sovereign and corporate programmes supporting AI deployment globally. According to these industry reports, AI’s capital‑intensive, energy‑hungry nature is changing the geography of investment: countries with reliable power, skilled labour and regulatory clarity are better positioned to capture the next tranche of digital investment.

Broad forecasters reinforce the IIF’s view of steady headline growth but diverge on levels and drivers. The IMF’s October World Economic Outlook projects a somewhat higher global growth baseline for 2026, with advanced economies growing modestly and emerging markets led by India maintaining stronger momentum. Morgan Stanley and other private forecasters see growth clustering around 3.0–3.2% in 2026, supported by resilient consumption and renewed capital spending, including AI projects. Capital Group and EFG International present similar themes: modest advanced‑economy growth, continued strength in select emerging markets, and upside from clearer trade and policy settings in some scenarios.

Risks remain familiar and significant. The IIF highlights uncertainty over the US fiscal path, China’s property‑sector adjustment and domestic demand, and geopolitical tensions that threaten shipping routes and raise costs. AI also complicates measurement of intangible investment and the distribution of gains. Yet the system has largely adapted through exchange‑rate adjustments and portfolio reallocation rather than through abrupt external crises, suggesting a degree of resilience anchored in the ongoing rotation of capital.

For policymakers and investors, the implication is clear: the world economy is rebalancing rather than drifting. Aggregate growth may look unchanged, but the composition of growth and the routes by which capital circulates are shifting. Recognising where capital is flowing , and why , will matter for trade patterns, industrial policy, and the distributional effects of the coming wave of digital investment. Industry and official forecasts alike indicate that the winners of the next phase will be those economies that combine macro stability, regulatory clarity and the infrastructure to support energy‑intensive and skill‑heavy technological investment.