China Business Knowledge’s 4 market forces in 2026

As economic headwinds and shifting consumer behaviour influence the market, how should businesses anticipate and adapt?

Featured faculty: Wu Jing, George Yang, Johnny Li, and Lisa Wan
Written by Putro Harnowo

The world started 2026 with a complex mix of opportunities and risks. Global productivity and economy have slowed down, but the Organisation for Economic Co-operation and Development expects emerging Asian markets to be resilient.

Following the recent US-China tariff truce, China achieved a record trade surplus exceeding US$1 trillion last year, setting the stage for intriguing developments in 2026. Meanwhile, sustainability backlash dominated 2025, with significant environmental, social, and governance (ESG) investment outflows in the US, leaving the sector trajectory uncertain.

Rapid demographic ageing in Asia and Europe will transform the insurance industry, with developed markets projected to see 35 per cent more individuals aged 65 and older by 2050 compared to 2025. Amid declining birth rates, younger consumers shift their priorities to products and services that provide emotional satisfaction, fueling the “emotional consumption” trend that continues to shape business.

Against these backdrops, we present our 2026 outlook by gathering insights from the Chinese University of Hong Kong (CUHK) Business School faculty. The first outlook highlights the hottest topics in technology, and the second part looks into economic and consumer behaviour that will redefine businesses.

1. New global order with a fragmented yet innovative world

Trade frictions between the US and China have already driven global firms toward diversification, prompting a shift away from reliance on Chinese manufacturing. However, Wu Jing, Professor at the Department of Decisions, Operations, and Technology, explored in his study that complete decoupling remains challenging due to entrenched dependencies.

“Currently, the most prominent strategy is ‘China plus one’ where companies maintain a baseline of production in Chinese Mainland but diversify into other emerging markets,” he says. “Relocating operations to allied or nearby countries appears to mitigate geopolitical risks, but their long-term sustainability is uncertain.”

A notable example of such dependencies is the controls over high-end computing chips by the US, which may not survive without the supply of rare earths from China. This tug-of-war was resolved at a summit of the two world leaders last year, but the truce is seen as a temporary fix, as Singapore’s Prime Minister echoed that the intense competition will continue.

“Companies are increasingly forced to navigate multiple, often conflicting regional supply chains, each governed by its own set of rules. In practice, this often means maintaining dual systems, one aligned with Western standards and another with China, which significantly drives up operational costs as they must build production lines and logistics networks to comply with different regulatory regimes,” Professor Wu adds. “If relations deteriorate further, a bifurcated supply chain system is probable.”

Not only posing a risk to global economies, Professor Wu sees geopolitical fragmentation likely to hamper sustainable supply chains by disrupting the flow of critical materials, driving up costs and creating inefficiencies. However, he believes there would be a silver lining. “Fragmentations may accelerate innovation through competitive investments, as companies facing disruptions would be incentivised to develop innovative solutions and technologies.”

2. Green finance is recalibrating

The US political polarisation, coupled with EU regulatory adjustments amid corporate and governmental pressure, drove much of the ESG backlash last year. Elsewhere, ESG investments face stricter rules: China’s new framework requires listed companies to disclose their decarbonisation plans this year, while firms listed on Hong Kong’s Hang Seng Composite LargeCap Index are mandated to disclose carbon emissions from their suppliers.

These developments underscore resilience, refining the field by weeding out superficial approaches. “Maximising ESG value is not only about disclosing and reporting, but also about what the companies are actually doing,” says George Yang, Professor at the School of Accountancy. “Firms need to be transparent and provide credible and verifiable evidence to stakeholders, especially investors.”

One of the main criticisms is that green investments may obscure the potential earnings. Professor Yang’s recent study finds that prioritising ESG information can make a company’s stock price less accurately reflect future returns, since investors may overlook traditional financial metrics. This finding reveals implications that extend beyond the surface.

“Sensible ESG initiatives are intended to be aligned with corporate strategies and shareholder values, including profit maximisation. However, in the value maximisation of ESG investments, we need to pay attention to a longer time frame than in the traditional approaches,” he adds.

Value maximisation of ESG investments involves incorporating ESG factors to achieve optimal financial performance. As opposed to traditional approaches that typically focus on maximising profits in the short term, ESG investments often take a longer time, even years, to deliver full benefits for shareholders.

Such a gap calls for the need to manage and balance shareholders’ expectations. In this regard, Professor Yang emphasises financial analysts’ crucial role in linking sustainability goals to investor decisions. “Financial analysts should pass investors’ concerns and expectations to the firm and help the firm to improve its actual ESG initiatives.”

3. Insurers’ battle for the ageing population

As the proportion of elderly citizens rises in some parts of the world, the insurers face mounting pressure to manage spiralling claim costs and a wave of soon-to-retire customer base. Professor Johnny Li, Tan Bingzhao Professor of Actuarial Science, observes that only those who master the art of extracting valuable insights from large and intricate big data can survive.

“Insurers aim to accurately categorise individuals with different health profiles into appropriate risk categories and corresponding premiums effectively. Those that fail to leverage data analytics for this purpose will be crowded out of the market,” he says.

To illustrate, Insurer A charges US$100 for all customers, and Insurer B uses predictive analytics, leveraging health history, lifestyle, and medical records, to assess the risk of each policyholder and charges US$50 to healthy customers and US$150 to less healthy ones. Healthy individuals would choose Insurer B, leaving Insurer A with high-risk clients, rising costs, and eventual failure.

“In practice, there are no insurance products that can be called unique,” Professor Li says. “Many insurers are already using predictive analytics, but those that are willing to invest more to have more refined models can put customers into finer categories, and they tend to have a better competitive advantage.”

Professor Li has developed a new method to forecast longevity risk, a financial risk of a person living longer than their savings, for China’s population. The country only saw the insurance industry emerge after 1979, making its population data inconsistent. As a comparison, insurers in Western markets have collected risk data since the 18th century.

He notes that China’s vast territory leads to regional differences in longevity risk, and these trends are likely to diverge further as socioeconomic disparities persist. Therefore, predictive analytics is essential for insurers to thrive. “With limited data available in the Chinese market, factors such as gender, city of residence, and income may be incorporated into a machine-learning-supported model.”

4. Emotional connection is the prime consumer driver

2025 has seen collectable plush monster toys called Labubu taking the world by storm, with teenagers and adults lining up at stores. In Hong Kong, a Japanese character series, Chiikawa, has captured fans’ hearts through themed cafés and pop-up events celebrating its cute and comforting charm.

While AI has integrated itself deeper into our daily lives, human emotions remain utterly irreplaceable and may become more profound in consumer behaviour. For example, a recent report by the AI Security Institute shows that a third of UK adults have turned to AI chatbots for emotional support.

Lisa Wan, Associate Professor in the School of Hotel and Tourism Management, observes modern customers increasingly seeking deep emotional connections and value beyond the product’s functional benefits. “In the case of Labubu or Chiikawa, the appeal lies beyond the toy, but the surprise in the blind box, scarcity from limited editions, and social buzz increase the emotional drive to buy,” she says.

Emotional connection also matters in the tourism industry. Professor Wan’s study highlights how emotional factors, such as thematic storytelling and colour cues, drive customers’ impulsive buying behaviour. Travellers also often form emotional bonds with a destination even before they arrive, sparked by captivating articles, social media, or heartfelt stories shared by friends and loved ones.

Applying an emotional touch may also be useful for Hong Kong, which has seen hotel occupancy rebound, but retail spending and hotel stays are lower than pre-pandemic levels. The city could consider shifting away from mass shopping toward cultural and authentic experiences to foster emotional connection.

“Hong Kong has unique cultural assets, including the mix of East and West, Cantonese heritage, street markets, and festivals,” says Professor Wan. “More attention should be given to how visitors feel connected to the region and the Greater Bay Area. With economic headwinds and more cost-aware consumers, emotional consumption means shifting from luxury for luxury to emotion-driven value, where deep and meaningful experiences matter, even in moderately priced stays.”

Professor Wan elaborates that when customers feel emotionally attached, they become advocates, community members, repeat visitors, and co-creators of value. “Their loyalty goes beyond ‘I like the hotel’ to ‘I feel connected to the brand and destination.’ Loyalty isn’t just about returning customers, but also making them willing to recommend to others.”