China: Preview of the NPC and Five-Year Plan

SUMMARY

• The National People’s Congress (March 5-11) will set economic policies for the year and approve the 15^th Five-Year Plan (2026-2030).
• The 2026 policy mix will imply a subdued growth outlook; a critical factor is fiscal policy, which will be a drag in net terms.
• A key macro watchpoint for the Five-Year Plan is whether Beijing sets targets for GDP growth and for consumption; unambitious or unclear goals would increase the risk of a prolonged malaise in domestic demand.

KEY DATES

China’s annual National People’s Congress (NPC) kicks off on March 5 and will likely close on March 11. The NPC meeting sets China’s economic policies for the year. This year’s NPC has added significance, as it will also approve and publish the 15^th Five-Year Plan, which will guide policy in 2026-2030.

The key dates are:

• March 5 is the most content-heavy day: At midday in Beijing, Premier Li Qiang will deliver the Government Work Report, the key document that announces the GDP growth target, fiscal deficit projections, and major policies.
• March 6-11 will provide further color. Xi Jinping will deliver remarks to a provincial delegation that emphasize his policy priorities. Economic officials will also give press conferences.
• On March 12, the day after the NPC closes, Beijing is expected to release the full 15^th Five-Year Plan (FYP).

FISCAL RESTRAINT TO WEIGH ON GROWTH OUTLOOK

We expect the NPC to signal symbolic stimulus, reinforcing a subdued growth outlook for 2026. Since the easing of US-China tensions last year, China’s leadership has signaled a reduced urgency toward supporting growth (detailed in our 2026 economic outlook HERE). While the headwinds for domestic demand remain formidable (ongoing property contraction, a weak labor market, deflationary pressure), resilient exports have kept conditions stable enough for Xi to focus on longer-term strategic goals such as tech and industrial policy.

Beijing will likely set a target for real GDP growth of 4.5-5%, down from “around 5%” in 2025. Measurement issues mean that China’s reported GDP growth, and the official target, are only modestly informative about the actual state of the economy. It would take a major surprise—a growth target above 5%, or below 4.5%—to shift our view on Beijing’s policy stance. Nominal GDP growth is a better barometer of the economy but is not an explicit policy target.

The aggregate fiscal stance for 2026 will be growth-neutral at best. Fiscal policy is the main stimulus watchpoint at the NPC, but headline figures only capture part of the true stance. The official general budget deficit accounts for less than half of China’s total on- and off-budget spending. Another pitfall is that the official budget is often overly optimistic about revenue performance in a climate of deflation. Our expectation for the actual stance of fiscal policy is as follows:

• We expect the NPC to set a general budget deficit target of 4% of GDP and special central government bond issuance of ~0.9% of GDP —about 4.9% combined. This 4.9% figure is unchanged from last year and broadly in line with the consensus, though we see the risk as biased toward a smaller deficit.
• More importantly, we expect the broad fiscal package to result in a reduction in aggregate fiscal expenditure of at least 0.4 percentage points of GDP in 2026. This anticipated fiscal drag on growth is not fully appreciated by investors.
• Our measure of the aggregate fiscal expenditure includes the general budget, the separate government funds budget (used for local government investment projects), and the off-budget spending of local government financing vehicles (LGFVs). It also includes fiscal saving from 2025 (0.4% of GDP) that will be spent this year and provide temporary support for activity in 1H.
• Aggregate fiscal expenditure will be contractionary because of weak tax revenues, continued deleveraging by LGFVs (see our report last week HERE), contraction of land sales revenues, and increased interest payments. We view the 0.4 ppt estimate of aggregate fiscal drag as conservative, with risks biased toward a larger drag.
• Bottom line: By our estimate, China needs to issue 12.4 trillion yuan in government bonds (excluding those used for bank recapitalization and debt swaps) to prevent the fiscal drag outlined above. In contrast, we expect the NPC to announce borrowing of only 11.8 trillion yuan this year. This is the figure we will be watching most closely.

We do not expect property support sufficient to stabilize the sector. The two prerequisites for a faster property market recovery are: (1) use of central government financing to clear unsold inventory; and (2) robust macroeconomic stimulus (covered above). As for central government support, most apartments sold through pre-sales prior to 2021 have now been delivered to buyers. This reduces a key flashpoint for social stability—and thus Beijing’s attention to the sector.

Given the expected lack of robust fiscal and property support, we are skeptical about Beijing’s pledges to boost consumption this year. Subdued consumption in China is due in large part to the property contraction and fiscal deleveraging (through weaker property prices, a soft job market, and lack of aggregate demand). As long as these macro headwinds are not abating, it would take very strong consumption promotion policies to sustainably boost household spending. Overall retail sales growth in 2025 was only 3.7% despite the government’s trade-in program for durable goods.

Monetary policy will stay restrained despite deflationary concerns. Appreciation pressures on the CNY (fueled by broad dollar weakness) mean that concerns over weakening the exchange rate are not a constraint on PBOC rate cuts. However, the authorities continue to worry about banks’ narrow net interest margins, and have yet to be convinced that deflation is a serious enough problem as to warrant large rate cuts. While we are closely watching the leadership’s evolving views on deflation and excess capacity, the signs suggest continuity in strategy. That is, Beijing’s “anti-involution” campaign to fight price wars focuses mainly on behavior (disciplining firms and local governments) rather than a macroeconomic policy prescription of boosting domestic demand. Demand support will be critical for making progress on deflation and excess capacity at the macro level.

FIVE-YEAR PLAN: WATCHING THE TARGETS

The 15^th Five-Year Plan is a comprehensive guide to Beijing’s medium-term agenda, including structural reforms, industrial policies, and major development projects. The preview of the plan released in the fall showed a policy agenda broadly consistent with the current one: the top two priorities in the plan are industrial modernization and innovation/tech self-reliance. The third goal, promoting domestic demand, is newly elevated in importance, at least rhetorically. (See our coverage of the FYP outline HERE and HERE.)

When the full FYP comes out on March 12, one of the key watchpoints for determining which goals are priorities vs. merely aspirational is the set of targets that Beijing announces. There are two in particular that we will be watching:

• GDP Growth. We see a good chance (70% probability) that the FYP will set a quantitative target for annual average real GDP growth, likely around 4.5%, even though the 14^th FYP did not set a target at all. Given issues with the reliability and consistency of China’s GDP accounting, a target of 4.5% or higher should be viewed as only marginally positive news. On the other hand, no quantitative target or a target lower than 4.5% should be viewed with concern. This would signal to officials throughout China’s system that growth is secondary (at least for now) to other goals. It increases the risk that the macro backdrop over the next five years resembles the 2023-2025 period—an outcome less optimistic than what has likely been priced into China’s equity markets.
• Consumption growth. While Xi has called promoting consumption a “strategic goal,” we are still skeptical of how much progress to expect. Beijing has not displayed strong urgency behind the consumption push or the political will to transfer income/assets from the state sector to households, a necessary condition. An upside surprise would be if Beijing were to make raising the consumption share of GDP a binding target, a message to the entire system of its importance. More likely is that consumption will be an “expected” rather than binding target, which is only marginally more positive than no target. And the combination of a loose consumption target and lack of a growth target (mentioned above) would imply rebalancing will continue to be slow. Consumption, as noted, is not independent of the broader economy so growth remains a key support.

A third watchpoint for markets, especially commodities, is the list of mega infrastructure projects the plan will announce. One should note that the actual timeline for implementing these projects is uncertain. For example, the massive Tibet hydro project that launched last July was part of the 14^th FYP released in 2021. Thus, while a robust set of new infrastructure announcements may move commodities higher in the near term, the ability to drive a sustained rally is questionable.