SUMMARY
- We do not expect major stimulus announcements at the upcoming Central Economic Work Conference (CEWC), which will outline only incremental measures; pro-growth language, if it comes, will be mostly rhetorical.
- The recent stabilization of US-China relations has reduced both the economic and political urgency for stepping up support for growth; Beijing will instead focus on Xi’s strategic priorities of innovation and advanced manufacturing.
- We expect a growth-neutral policy stance through H1 2026, followed by a modest increase in stimulus in H2; near-term risks for the equity market tilt to the downside given a lack of positive macro catalysts.
Beijing will hold its annual Central Economic Work Conference (CEWC) in mid-December, outlining its policy orientation for 2026. In the last two years the CEWC has convened Dec. 11-12. The Politburo meets several days before the CEWC and offers an initial preview of the tone and key themes.
Given China’s ongoing economic weakness, many market participants are closely watching the Politburo meeting and CEWC for stepped-up support for growth. However, our baseline is that CEWC will not offer strong stimulus signals, and we would take any pro-growth messages with more than a grain of salt. Our cautious view is based on the assessment that Beijing’s policy reaction function is more focused on risk-reduction than boosting growth, and that the recent stabilization of US-China relations further reduces the urgency of supporting domestic demand.
Pivoting Back
We recently argued (link HERE) that the lack of policy support in H2 is not merely the result of the annual growth target for 2025 (“around 5%”) being within reach. It is also evidence that growth remains secondary to Xi’s overarching priorities of promoting innovation and advanced manufacturing and restraining growth of government debt.
Beijing’s September 2024 “policy pivot” had more to do with reducing financial and fiscal risks and reinforcing confidence than it did boosting growth (link HERE), and this has remained the case in the last year. Beijing has allocated roughly US$2 trillion to mitigate local government debt and banking sector risk, while fiscal stimulus has been incremental, at less than 0.5% of GDP in 2025.
Beijing has been particularly focused on bolstering the economy to better withstand US-China tensions. The policy pivot happened around the same time Trump’s election odds improved, with Beijing moving proactively to insulate against a potential trade war. Policy urgency declined significantly once a preliminary US-China truce was reached in mid-2025, and growth momentum has been sliding since then. There are already signs that Beijing is taking a more tolerant attitude towards financial risk by allowing embattled property developer Vanke to flirt with a default on bonds coming due in early December.
The further stabilization of US-China relations following the recent Trump-Xi meeting will reduce Beijing’s urgency to stimulate growth in coming quarters, for two main reasons:
- In economic terms, the near-term probability of a re-escalation of tensions that threatens growth and confidence is low. Trump continues to demonstrate that he seeks to preserve, and build on, the late October meeting with Xi that resulted in a pledge by Beijing to resume purchases of US agricultural products. Xi will host Trump for a state visit in April, and the two leaders may meet an additional three times next year.
- In political terms, Xi’s deft handling of US-China relations has bolstered his domestic standing as he prepares to stay on for a fourth term in the fall of 2027. Indeed, Trump has explicitly recognized China as the only true peer to the United States and lowered the temperature on sensitive issues such as Taiwan. This achievement reduces the need for Xi to consolidate his legitimacy through delivering strong economic growth.
While we are not entirely writing off the possibility of Beijing becoming more pro-growth in 2026, our baseline is growth-neutral policy for at least H1 2026. Given renewed property weakness and local fiscal difficulties, China’s economy will continue to face meaningful headwinds in 2026. But Beijing will muddle through without greater efforts to reflate the economy until it becomes necessary, focusing instead on innovation and industrial policy priorities. The 2026 policy cycle will be similar to 2023–24, with support for growth remaining insufficient in H1 and additional, but still measured, stimulus introduced in H2.
The triggers for a faster or more aggressive stimulus response would be as follows:
- The 2026 growth target is in danger. Beijing will not publish its growth target until March, but we expect “around 5%” real growth to remain the target. In recent years Beijing has become more patient, letting stimulus lag in Q2 and Q3 before taking measures late in the year to ensure it hits the growth target.
- External risks rise. We expect the US-China truce to last through 2026, with Trump eager to maintain farm exports to China and keep tariffs low in advance of midterm elections in November. (We do see the truce as more vulnerable after 2026, particularly to a renewed bout of tensions over technology controls). Trade and diplomatic tensions with the EU and Japan are brewing but will not lead to aggressive tariffs on imports from China.
- Domestic political and social pressures rise. This also does not seem like a major near-term concern for Beijing. The combination of weak growth and deflation means that 2026 will be another difficult year for Chinese households and firms. But Beijing will wait until the pressures become too tough to ignore, or until the leadership transition in late 2027 comes into view, before pushing through major stimulus.
While these triggers are important to monitor, we assess that the beta of policy response to economic weakness has declined; it will take significant pressures to drive a major policy shift in coming quarters.
CEWC Watchpoints
While the CEWC readout will hit the key themes investors expect, the language will likely imply incremental measures rather than anything hinting at a pro-growth shift. The readout will pledge continued support for consumption, which we expect to be modest in scale and to shift from subsidizing goods to services. There may also be references to new property measures under consideration, but we expect these to aim only to slow the pace of deterioration in the sector, with the bottom still nowhere in sight.
Beijing will also pledge to continue the anti-involution campaign but without a more decisive push. China’s leadership continues to treat “involution” (overcapacity and price wars) as a sector-by-sector behavioral issue – requiring more discipline from firms and local governments – than a macroeconomic issue that requires broad demand-side support. We doubt this changes anytime soon, and are more inclined to believe that Beijing will be less aggressive in mandating supply-side cuts in coming quarters, rather than more aggressive.
Equity Market Implications: We see few macro catalysts for equities between now and the 2026 March annual National People’s Congress meeting, when Beijing announces its formal targets and policies for the year. A weak macro backdrop and ongoing deflationary pressures will continue to be a headwind for corporate earnings. Stable US-China relations remove a tail risk for equities, but this is likely already priced in. Risks for equities thus tilt to the downside. The biggest risk is that investors, processing the lack of policy support for the property sector and broader growth, begin to also lose confidence in the implicit policy put for equities that has been in place since September 2024. Beijing’s willingness to support equities has been higher than in the case of property and growth, but it is unclear where authorities will seek to establish a floor for the market if confidence wanes.
