Growth push anchors strong start of 2026

China is expected to unveil its annual economic growth target at the upcoming two sessions, the yearly meetings of the country's top legislature and political advisory body, signaling a growth-oriented stance that will require more proactive fiscal support and renewed efforts to boost domestic demand, economists said.

As the opening year of the 15th Five-Year Plan (2026-30), policymakers are likely to prioritize a strong start, with fiscal policy taking the lead and consumption elevated to a strategic anchor of growth.

Economists say the policy mix will center on expanding government spending, front-loading government bond issuance and channeling more resources toward households, services and new growth drivers.

While monetary policy will remain appropriately accommodative, it is expected to play a supporting role, with the central bank maintaining ample liquidity but exercising greater caution on large-scale interest rate cuts, they added.

As the weighted average GDP growth target set by local governments for 2026 is about 5 percent, China's annual growth target will most likely be set between 4.5 percent and 5 percent this year, said Li Chao, chief economist at Zheshang Securities.

Compared with 2025, 12 provinces, such as Jiangsu, Shandong, Sichuan, Hebei, as well as Beijing and Shanghai, have kept their growth targets unchanged, while 18 have lowered them or shifted to range-based targets, including Guangdong, Zhejiang and Henan. Only Jiangxi province has raised its target to a 5 percent to 5.5 percent range.

"2026, as the first year of the 15th Five-Year Plan, will still strive for a strong start," Li said, projecting China's annual GDP to grow at around 4.8 percent in 2026, broadly in line with those set in local government work reports.

Xiong Yuan, chief economist at Guosheng Securities, said the targeted range of 4.5 percent to 5 percent would still be "on the high side", implying that macroeconomic policy needs to be "more proactive, more expansionary and more stimulative" with a particular focus on securing a strong start in the first quarter.

Xiong's views were echoed by Zhang Jun, chief economist at China Galaxy Securities.

Zhang said the tone set by the Central Economic Work Conference in December indicates that China will continue to implement a more proactive fiscal policy in 2026.

He expects three defining features: an expanded spending envelope with the broad deficit ratio broadly stable from 2025; optimized spending direction with stronger support for domestic demand and technology; and a front-loaded implementation rhythm to ensure funds are disbursed early and used quickly.

Zhang estimates that the fiscal deficit ratio could remain at around 4 percent, implying a deficit of roughly 5.9 trillion yuan ($849 billion). Local government special bond quotas may rise to 4.8 trillion to 5 trillion yuan, while issuance of ultra-long-term special treasury bonds could increase to about 1.5 trillion yuan.

Notably, he said, funding under the programs for large-scale equipment renewals and trade-in deals for consumer goods and further support for major national strategies while building up security capacity in key areas, could total around 1.4 trillion yuan in 2026, reinforcing their role as key tools for expanding domestic demand.

Citing the national fiscal work conference in late December, Zhang said the emphasis on domestic demand has been elevated from a key task in 2025 to a strategic priority of adhering to demand-led growth in 2026, underscoring its central role in countercyclical and cross-cyclical adjustment.

The Ministry of Finance's pledge to implement a "more proactive" fiscal policy in 2026 reflects a sober assessment of the challenges facing the world's second-largest economy — domestic demand needs to be boosted to promote economic circulation.

According to the national fiscal work conference, the country will adhere to a domestic demand-led strategy and support the development of a strong domestic market. China will vigorously boost consumption and thoroughly implement special initiatives to stimulate spending. It will also actively expand effective investment and increase funding for key areas such as new quality productive forces and the all-around development of people.

China will strengthen efforts to ensure people's basic living needs, provide a solid safety net, and effectively enhance social welfare. More efforts will also be made to promote employment and income growth, the work conference said.

Wang Wei, a senior researcher and former director of the Institute of Market Economy at the Development Research Center of the State Council, said boosting domestic demand — especially consumption — is expected to be at the core of this year's economic agenda.

"To ensure stable economic growth during the 15th Five-Year Plan period, China needs to achieve a notable increase in final consumption as a share of GDP," Wang said. "That means future growth will need to rely more on domestic demand — particularly on the sustained, steady growth and innovation of consumption."

She noted that although the consumer market is stabilizing, structural constraints remain: consumption growth lags income growth, the growth in goods and services consumption is uneven, structural contradictions in supply and demand remain severe, and many small market entities remain too fragmented to drive innovation.

To further boost consumption, she said it is advisable for the government to strengthen countercyclical support and provide more support for service consumption, expand rental and home renovation subsidies, support education and training spending, and encourage local governments to issue service consumption vouchers. At the same time, reforms to income distribution, social security and paid leave systems are seen as critical to stabilizing expectations and boosting consumer confidence.

Betty Wang, head of Northeast Asia research at Oxford Economics, said the next five years will mark a critical transition phase as external pressures intensify and structural challenges deepen.

She identified insufficient effective demand as the core constraint on China's recovery, driven by sluggish consumption and weak investment amid a prolonged property downturn.

Wang said she expects the relatively accommodative fiscal and monetary policy mix to continue into 2026, with the fiscal deficit ratio likely to remain around 4 percent.

Highlighting the importance of boosting domestic demand, especially expanding effective investment, Wang Yiming, vice-chairman of the China Center for International Economic Exchanges, said China has the conditions to halt the decline in investment in 2026 despite headwinds from local government debt and weak corporate sentiment.

"There is still significant investment space, particularly in technological upgrading of traditional industries, breakthroughs in core technologies, urban renewal, rural infrastructure and public services," he said.

He called for advancing major 15th Five-Year Plan projects early, increasing the share of livelihood-related investment, improving pricing mechanisms in public utilities to attract social capital, and innovating local government financing models.

Raising investment in healthcare, eldercare, education and cultural facilities would both improve living standards as well as complement consumption upgrading, forming a virtuous cycle of expanding investment, enhancing human capital and strengthening domestic demand, he added.

In its monetary policy implementation report for the fourth quarter of 2025, the People's Bank of China, the country's central bank, said the economy in 2026 has the conditions to remain stable and improve, citing stronger foundations, growing new drivers and robust policy support.

The central bank has pledged to implement a "moderately loose" monetary policy and continue expanding domestic demand, while adding that promoting stable economic growth will be an important consideration. However, its shift in language from pushing financing costs lower to keeping them at low levels suggests that while easing remains the broad direction, large and rapid rate cuts may be less likely.

Xiong of Guosheng Securities said the report suggests that "any further weakening in economic fundamentals will remain a key trigger for additional monetary easing".

Meanwhile, he said the central bank is likely to act more cautiously on interest rate cuts, making it less likely to see rapid, large-scale or sustained interest rate reductions.

ouyangshijia@chinadaily.com.cn