Beijing rang in the new year with a promise: do more, but smarter.
In a televised New Year’s address and a small tea party with senior officials, President Xi Jinping said China is on track to meet its roughly 5% growth target for 2025 and pledged “more proactive” macro policies for 2026. He framed the coming year as one of improving the quality of growth rather than simply chasing bigger numbers — a line aimed at calming markets while keeping the policy toolkit flexible.
Xi touted headline achievements — GDP likely at about 140 trillion yuan (roughly $20 trillion) and advances in defence and science and technology — and reiterated the long-standing goal of “common prosperity.” But beneath the upbeat tone lie familiar headaches: weak household consumption, lingering deflationary pressure, and a property sector that still drags on broader demand.
Where the money will go (and how)
Beijing’s approach looks twofold: inject demand where it’s most likely to stick, and squeeze more bang from each yuan spent. Central planners have already signaled early investment plans for 2026 — including major projects backed by about 295 billion yuan of central budget funding — and approvals for two large projects worth roughly $42 billion. At the local level, 62.5 billion yuan from special treasury bond proceeds has been earmarked for a consumer goods trade-in scheme to nudge appliance replacement and spur spending.
Officials stress “efficiency” as much as scale. Finance Minister Lan Fo’an has spoken about better-targeted transfer payments to strengthen local governments’ spending power while accelerating efforts to tackle off-balance-sheet local borrowing. The narrative is clear: avoid a blunt surge in stimulus that inflates hidden debt, and instead refocus spending on projects with measurable returns and national priorities.
A consumption nudge and other demand fixes
Policymakers say they’ll deploy special actions to boost consumption — from subsidies and trade-in programs to what leaders call more proactive fiscal measures. Consumer-facing support is meant to offset a pattern seen in 2025: exports remained resilient, but domestic demand lagged. That dynamic produced an unusual backdrop: a booming trade surplus that topped $1 trillion in November, a statistic likely to complicate relations with trading partners already pressing China to rebalance toward domestic-led growth.
Technology, chips and economic self-reliance
Xi used the New Year platform to highlight technological breakthroughs and a drive for self-sufficiency. Beijing has poured state capital into domestic semiconductor development and poured billions more into AI and advanced manufacturing — part of a multi-year strategy to blunt U.S. restrictions on certain high-end tools.
That push has broader implications for the global tech landscape. China wants homegrown chips and stronger AI capabilities; at the same time, domestic progress in areas like large language models raises fresh questions about competition, regulation and how Western firms engage with Chinese partners. For context on how major tech players are building their own models and tools, see Microsoft’s in‑house image model development in MAI‑Image‑1 and moves to weave deep AI search into consumer ecosystems like Gemini’s Deep Research integration.
Markets and the politics of surplus
Chinese markets closed 2025 on a high: indexes posted their best years in several cycles and the yuan strengthened significantly, breaching a psychologically important level against the dollar. But the trade surplus story is a double-edged sword. A persistent surplus can invite external pressure and underscore the need for China to stimulate domestic consumption rather than lean on exports as the primary growth engine.
Domestically, authorities are walking a narrow line. The government expanded its planned broad deficit to support growth in prior years, yet actual spending has often lagged pledges. This time, officials are leaning into better coordination between fiscal tools and financial policy — more precise transfers, better project selection, and an emphasis on areas that boost long-term productivity rather than short-lived demand spikes.
Why this matters beyond Beijing
If Beijing succeeds in channeling funds into productive, innovation‑led investments while nudging households to spend, the global economy gets a steadier China: more import demand for foreign firms, less chronic reliance on export-driven cycles, and a potentially friendlier tone in trade tensions. If authorities misjudge the balance and under-deliver on effective domestic support, however, the world could see continued volatility, subdued global demand and renewed political friction over trade imbalances.
Xi’s message was intentionally calibrated: active support without the headline-grabbing stimulus of past cycles. The coming months will test whether China can convert that calibration into policies that actually restore momentum at home without stoking new financial risks.
Tags: Policy, China Growth, Fiscal Strategy, Technology, Trade