China is likely to set a pragmatic and flexible GDP growth target for 2026, with policymakers seeking to balance stabilisation objectives against mounting external and domestic pressures, according to commentary and analyst assessments following the Central Economic Work Conference.
This follows lacklustre data yesterday, but a still solid yuan:
- China yuan hits 14-month high even as weak consumer demand clouds economic growth outlook
- China signals more policy support (same old?) as economy 'stabilises' in November
Commentary published by China Securities Times suggests policymakers are divided over whether to anchor next year’s growth target at around 5%, or adopt a slightly wider 4.5%–5.0% range that would allow greater policy leeway. Analysts argue that flexibility will be critical given a more challenging global backdrop, slowing external demand and persistent domestic supply-demand imbalances.
The Central Economic Work Conference underscored this cautious tone, reaffirming the guiding principle of “seeking progress while maintaining stability.” Policymakers emphasised the need to stabilise employment, businesses, markets and expectations, while delivering “reasonable quantitative growth” alongside qualitative improvements as China embarks on the 15th Five-Year Plan. Importantly, the meeting reiterated continuity in macro policy, maintaining a more proactive fiscal stance and a moderately loose monetary policy, alongside stronger counter-cyclical and cross-cyclical adjustments.
Most analysts expect the 2026 growth target to remain close to 5%, with policy support front-loaded to ensure a solid start to the year. Measures are likely to focus on expanding domestic demand, unlocking consumption potential, lifting effective investment and offsetting the drag from weaker exports, while continuing efforts to stabilise the property sector.
Economists anticipate further monetary easing, with interest rate cuts of 10–20 basis points and reserve requirement ratio reductions of 50–100 basis points pencilled in for 2026. Some analysts expect the People’s Bank of China could move as early as January, ahead of the Lunar New Year, to shore up confidence and liquidity.
On the fiscal side, projections point to a deficit ratio of around 4%, unchanged from 2025, alongside an expanded issuance of ultra-long-term special treasury bonds and steady or slightly higher quotas for local government special bonds. Authorities are also expected to deploy targeted tools, including relending facilities and subsidies, to support consumption, infrastructure, technological innovation and small businesses.
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A pragmatic and flexible 2026 growth target reduces near-term downside risks for the yuan by signalling policy responsiveness rather than hard growth constraints. While further rate and RRR cuts may cap CNY upside, front-loaded stimulus and a clearer demand-support narrative should help limit depreciation pressure, keeping USD/CNY anchored within managed ranges rather than prompting a disorderly weakening.
