The 2026 National Two Sessions - comprising the Chinese People's Political Consultative Conference (opened 4 March) and the National People's Congress (opened 5 March, closed 15 March) - have concluded. For overseas investors, the Two Sessions represent the moment of greatest policy transparency in China each year. Policy directions established at the December Central Economic Work Conference are formally translated here into quantifiable growth targets, fiscal budgets, and industrial policy roadmaps, providing the most authoritative guidance for capital flows throughout the year.

The 2026 Two Sessions carry two distinct strategic dimensions. First, 2026 is the opening year of the 15th Five-Year Plan (2026-2030).For the first time, the draft Five-Year Plan outline was submitted to the NPC for review, offering markets a rare five-year policy visibility window. Second, this is the first Two Sessions since US-China trade tensions materially escalated – making it a critical lens through which to observe how Beijing is reshaping domestic policy in response to external pressures.

The core policy outputs that markets focus on during the annual Two Sessions can be summarised across five dimensions:

·         The GDP growth target, which anchors the macroeconomic tone for the year and directly shapes market expectations for policy intensity and corporate earnings headroom.

·         The fiscal deficit ratio, which determines the government's capacity and willingness to deploy fiscal resources and is the key parameter for assessing the scale of policy expansion.

·         The monetary policy stance, which clarifies the willingness and pace of deploying easing tools such as reserve requirement ratio cuts and interest rate cuts.

·         The key industrial policy agenda, which points to sectors where policy dividends will be concentrated and serves as an important reference for capital allocation.

·         Major legislative and institutional changes, which foreshadow medium- to long-term adjustments in regulation and market structure.

2026 Two Sessions policy interpretation: Five core signals

Overview of 2026 Two Sessions Policy Signals

▎GDP target: Flexible range replaces rigid number

China’s 2026 GDP growth target has been set at a range of 4.5%-5%. The adoption of a range rather than a single number reflects a maturation of policy communication. Having successfully achieved the 5% growth target in 2025, with total output breaking through RMB 140 trillion for the first time, policymakers no longer need to reply on a rigid number to prove growth capacity.

The use of a range target signals a clear shift in focus from growth speed to growth quality, while also reducing the risk of over-stimulating the economy in pursuit of a single numerical target.

▎Fiscal policy: 4% Deficit ratio solidified as the new normal

The fiscal deficit ratio has been maintained at approximately 4% for the second consecutive year. It is worth noting that China's fiscal deficit ratio had persistently below 3% through 2023 and earlier years. Two consecutive years at 4% means this is no longer emergency stimulus in response to external shocks, but rather a structural reset of the fiscal policy baseline - a development that will materially change how markets price the sustainability of China's fiscal space over the coming years.

In concrete terms,the deficit has expanded from RMB 5.66 trillion in 2025 to RMB 5.89 trillion.General public budget expenditure has surpassed RMB 30 trillion for the first time; and ultra-long-term special government bonds in 2026 are held at RMB 1.3 trillion, flat with 2025, but with the refined  allocation priorities.-This  reflects a shift from "effective" to "efficient" and from "scaling up" to "improving quality," with funds concentrated in technology innovation and major strategic projects.

▎Inflation target: Proactively guiding moderate inflation recovery

The CPI growth target has been set at approximately 2%. Against a backdrop of persistently weak consumer prices in recent years, this is a meaningfully directional positive signal. If achieved, it would bring a substantive moderate inflation recovery, supportive of the restoration of pricing power among leading consumer goods and materials companies.

▎Monetary policy: The easing toolkit made more explicit

The monetary policy language has been changed from "timely reserve requirement ratio and interest rate cuts" to "flexible and efficient use of multiple policy tools including reserve requirement ratio and interest rate cuts." This shift in language means that RRR and rate cuts have moved from conditional tools to active deployment instruments, and the certainty of policy easing has risen significantly. At the same time, the People's Bank of China has stated explicitly that it will not seek trade competitive advantage through RMB depreciation, providing a policy backstop for exchange rate stability and effectively reducing the tail risk of holding RMB-denominated assets for overseas investors.

▎Industrial policy: From directional statements to itemised implementation

"AI+" has been written into the Government Work Report for the first time as an independent economic concept, with explicit directives for AI Agents to be deployed across all industries - the most operationally specific AI policy language in any Two Sessions to date.

The industrial policy architecture has also become clearer in its tiered design:

·         Emerging Pillar Industries (near-term investment priorities with commercial monetisation capability): integrated circuits, aerospace, biopharmaceuticals, low-altitude economy, new energy vehicles, and advanced equipment.

·         Future Industries (long-term strategic development and frontier technology incubation): brain-computer interfaces, quantum technology, embodied intelligence, 6G, and future energy.

This dual-tier classification framework - combining near-term earnings certainty with long-term option value - provides a clear policy roadmap for capital allocation across China's technology supply chain.

Sector Outlook: Two Sessions Policy

Information Technology - The highest policy density sector

Information technology has emerged as the most heavily emphasised sector in this year's Two Sessions. The debut of "AI+" as a standalone policy pillar, the explicit mandate for AI Agent rollout across all industries, the designation of ultra-large-scale intelligent computing clusters as new infrastructure, and the promotion of AI PCs, AI smartphones, and intelligent industrial equipment together mark an unprecedented level of policy focus.

From a medium- to long-term perspective, information technology is uniquely positioned as the only sector spanning both the emerging pillar industries and future industries tiers, while areas such as  integrated circuits and AI applications contributing near-term earnings certainty, and quantum technology, brain-computer interfaces, and 6G provide long-term option value. Policy support is set to t extend across the entire 15th Five-Year Plan cycle, reinforcing its role as a central pillar of China’s economic transformation.

Financials - Dual beneficiary of the easing cycle and capital market reform

The explicit pivot of monetary policy toward proactive easing is an important policy catalyst for the financial sector. While interest rate cuts will exert some near-term pressure on banks' net interest margins, policymakers are simultaneously offsetting this by guiding deposit rates lower, helping to stabilise margins. At the same time, improved liquidity conditions should support a broader repricing of financial assets.

Equally important is the acceleration in capital market reform. The imminent launch of ChiNext reforms, the first-ever inclusion of private equity exit channels in the Government Work Report, and the formal establishment of a national-level M&A fund collectively and systematically improve the operating environment for the financial sector, providing a clear positive for investment banking and asset management businesses.

With valuations near historical lows and dividend yields remaining attractive, the financial sector continues to provide both a valuation floor and income buffer for the broader market.

Industrials - Supply-side consolidation driven by anti-involution policy

“Anti-involution” has emerged as one of the most important policy themes from this year's Two Sessions deserving deeper analysis. Policymakers have explicitly called for an accelerated exit of inefficient capacity through administrative means including environmental standards enforcement, capacity regulation, and price oversight - essentially driving a new round of supply-side structural consolidation.

History suggests that this type of policy-guided industry consolidation can be highly effective. The 2016 supply-side reform in sectors like steel and coal led to a sustained recovery in pricing power and profit margins for industry leaders.  At the same time, aerospace and the low-altitude economy have been explicitly designated as emerging pillar industries, providing an independent policy beta for the high-end manufacturing direction within the industrials sector.

Materials - An underappreciated supply-side beneficiary

The investment case for the materials sector under the “anti-involution” policy closely mirrors that of the industrials sector. Administrative capacity cuts, combined with M&A fund-supported industry consolidation, are creating the structural conditions for margin recovery among materials sector leaders.

Additionally, the infrastructure investment, driven by RMB 1.3 trillion in ultra-long-term special government bonds, is set to generate substantial downstream materials demand, providing demand-side support for volume expansion in the sector.

Despite these tailwinds, the market has paid relatively little attention to the sector. Compared with information technology and financials, policy support for materials remains underappreciated, leaving the supply-side consolidation story both intact and potentially mispriced.

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