Pragmatic policy framework signals quality over quantity in 2026

The annual session of China's National People's Congress (NPC) convened on March 5 in Beijing. In the government work report delivered by Premier Li Qiang, a series of policy goals and priorities were announced. The key message is to ensure stable economic growth by maintaining appropriate fiscal expansion and moderate monetary policy, while domestic demand expansion and technological innovation are positioned as top priorities among this year's government tasks.

An annual growth target range of "4.5–5%, striving for better results in actual work" was announced, down from 2025's "around 5%" formulation (Exhibit 1). This signals Beijing's acceptance of slower growth in exchange for structural rebalancing and quality development. The range-based approach establishes a foundation for per capita gross domestic product (GDP) to reach moderately developed-country levels by 2035 while acknowledging heightened uncertainties in the global environment. The qualifier "striving for better results" demonstrates the government's proactive stance despite the more conservative baseline. Additional targets include an urban unemployment rate of approximately 5.5%, consumer price index (CPI) growth of around 2%, residents' income growth synchronized in line with economic expansion, and a 3.8% reduction in carbon dioxide emissions per unit of GDP.

Fiscal policy maintains a proactive stance, with the budget deficit ratio held at 4% of nominal GDP, translating to CNY 230billion in additional fiscal deficit for 2026. To support major infrastructure projects, equipment renewal initiatives, and consumer goods trade-in programs, the government plans to issue CNY 1.3trillion in ultra-long-term special central government bonds (CGBs) and CNY 4.4trillion in special local government bonds (LGBs), consistent with 2025 levels. This measured approach positions fiscal spending as the primary stabilizer for domestic demand without resorting to excessive stimulus. 

Monetary policy retains its "moderately loose" characterization while emphasizing stable economic growth and a reasonable price recovery. The People's Bank of China (PBOC) will deploy multiple policy tools flexibly to maintain ample liquidity, ensuring that the scale of social financing and money-supply growth align with economic growth and price-level targets. Notably, given the persistent interest rate differential with the U.S. and the limited effectiveness of previous rate cuts in stimulating household borrowing, monetary policy prioritizes price stabilization over aggressive rate reductions (Exhibit 2). A potential wild card lies in the weakening of the U.S. dollar (USD). Should the CNY appreciate against the USD as anticipated, the PBOC may have scope for more aggressive monetary easing, which could also help stabilize the CNY exchange rate and support exports. 

In addition to traditional fiscal and monetary policies, domestic demand expansion and technological innovation are listed at the forefront of the government's tasks in 2026. To boost consumption, CNY 250billion in ultra-long-term special central government bonds will support consumer goods trade-in programs, complemented by CNY 100 billion in special funds for fiscal-financial coordination. A plan for "income growth for rural and urban residents" was emphasized, though no substantive or actionable measures were detailed. A modest step involves raising the minimum standard for rural and urban basic pensions from CNY 143 to CNY 163 per month (primarily covering rural residents).

In terms of technological innovation, the government is advancing "artificial intelligence+” (AI) initiatives, accelerating the deployment of next-generation intelligent terminals and AI agents, promoting commercial-scale AI applications across key industries, and developing satellite internet alongside an upgraded "5G+ Internet" infrastructure. The 2026 report identifies specific emerging pillar industries, including integrated circuits, aerospace, biopharmaceuticals, and the low-altitude economy, while targeting future industries such as advanced energy systems, quantum technology, embodied intelligence, brain-computer interfaces, and 6G communications.

The 15th Five-Year Plan commits to annual research and development (R&D) spending growth exceeding 7% and targets the digital economy to comprise 12.5% of GDP. The regulatory environment for private technology companies continues to ease, building on 2025's momentum following significant technological breakthroughs.

Notably absent from the 2026 NPC announcements was any strong real estate policy exceeding market expectations. The government's approach remains focused on "city-specific policies to control increments, reduce inventory, and optimize supply," with targeted support limited to first-time homebuyers and multi-child families. This measured stance confirms that Beijing has no intention of returning to property-led growth, despite the sector's continued challenges. The lack of aggressive stimulus measures signals that policymakers are comfortable with property‑market stabilization at lower levels rather than pursuing reflation. 

Investment implications

The absence of stronger-than-expected real estate stimulus measures, combined with the government's prioritization of domestic demand and technological innovation among its top policy objectives, suggests these sectors will become critical pillars of economic growth in 2026. However, confidence in income growth and consumption recovery remains subdued despite policy rhetoric, and investors are primarily anticipating increased resource allocation toward "new quality productive forces." This structural economic transformation is likely to generate corresponding opportunities in equity markets for companies aligned with these strategic priorities.

The investment landscape has evolved significantly from 2025's technology-driven broad rally in Chinese A-shares and Hong Kong markets. While risk appetite improved through 2025, 2026 will require more discriminating analysis. Under such circumstances, active management and diversification are essential. Leaders in AI, semiconductors, quantum computing, 6G infrastructure, internet platforms, green economy, and robotics might benefit from escalated policy support and inflows.

Crucially, investors should remain vigilant about the sustainability of profitability in these emerging sectors. Historical precedent in government‑supported buildouts suggests that intense competition and overcapacity can compress margins over time. As a result, stock selection should emphasize defensible competitive advantages and proven execution capabilities, favoring firms with demonstrable pricing power, or ecosystem moats, and disciplined capex through the cycle.

From a valuation and flows perspective, onshore equities screen relatively more attractive than their offshore counterparts, with the Hang Seng A‑H Premium Index at 121 versus a 10‑year average of 134, while offshore markets may enjoy a marginal flow advantage as global investors diversify away from dollar‑denominated assets and as sentiment toward international markets improves. This suggests a nuanced stance: valuations argue for increased attention to onshore opportunities, even as offshore listings may capture incremental cross‑border demand and liquidity.

Nevertheless, both onshore and offshore Chinese equities remain important to portfolios, with the former providing a stable dividend yield, a valuation discount, and broad access to emerging industries, and the latter offering an abundance of leading names with strong balance sheets, potential policy beneficiaries, and exposure to foreign interests. A barbell strategy with both onshore and offshore equities, as such, should be set to capture tailwinds in both markets.

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