China is no longer trying to grow as fast as possible. It is trying to grow differently. Under rising external pressure and internal constraints, the 2026 Two Sessions reveal a system that is becoming more selective, more strategic, and less dependent on its old drivers.
Understanding China’s Two Sessions
Each year, China’s political calendar is defined by the “Two Sessions”, a set of meetings that provides one of the clearest signals of the country’s policy direction. In early March 2026, thousands of delegates from mainland China, Hong Kong, and Macau gathered in Beijing to deliberate on legislation, personnel changes, and the national budget for over a two-week period. During this time, the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC) meet concurrently, forming the core of China’s central governance process.
The NPC is China’s highest legislative body, composed of approximately 3,000 delegates. It is often described as the country’s parliament, although decision-making is largely shaped in advance by the Communist Party. The CPPCC, by contrast, is an advisory body of roughly 2,000 members, including business leaders, academics, and cultural figures. While it provides policy recommendations, it has no formal legislative authority or limited direct influence.
Since 1978, the Two Sessions have served as a crucial platform for announcing macroeconomic and socio-economic priorities. The meetings typically feature speeches by the premier, the announcement of economic targets, and updates on fiscal and military policy. They have also coincided with major political developments, including the removal of presidential term limits in 2018, which enabled Xi Jinping to secure a third term.
At the center of the Two Sessions is the annual Government Work Report (GWR). This document reviews the previous year’s performance and sets forward-looking targets across key indicators such as GDP growth, fiscal policy, employment, and inflation. As such, it provides a structured framework for understanding both the government’s short-term priorities and its broader strategic direction.
The Importance of the Two Sessions in China’s Policy Framework
The 2026 Two Sessions, which opened on March 4, carry particular significance due to their connection to the upcoming 15th Five-Year Plan (FYP) covering 2026 to 2030. Every five years, the NPC formally approves a new plan that outlines China’s medium-term economic and social strategy. Under Xi Jinping, the scope of these plans has expanded beyond traditional economic planning to include technological self-reliance, national security, and long-term industrial strategy.
Preparation for a new FYP begins well in advance. Early proposals are drafted, followed by multiple rounds of internal review before final approval. For the 15th FYP, key themes had already emerged in preliminary discussions, including strengthening domestic demand and accelerating development in advanced technologies such as artificial intelligence. Priorities highlighted in late 2025 included high-quality growth, industrial upgrading, closer alignment between economic policy and national security, and the expansion of green technologies.
A central feature of China’s Five-Year Plans is the use of “main indicators” (zhuyao zhibiao), which define the targets used to measure progress. These indicators are divided into binding targets, which carry stronger policy enforcement, and expected targets, which provide directional guidance. Under the 14th FYP, the total number of indicators was reduced from 33 to 20, reflecting a deliberate shift toward greater policy flexibility in response to external shocks such as trade tensions and the pandemic.
The composition of these indicators also reveals evolving policy priorities. The 14th FYP reduced the number of environmental targets, increased the emphasis on social welfare, and introduced new measures related to agricultural and energy security. This rebalancing reflects a broader strategic shift under Xi Jinping toward prioritizing national security and social stability alongside economic development.
Figure 1. Shifting Policy Priorities in China’s Five-Year Plans (10FYP – 14FYP)
Each year, China’s political calendar is defined by the “Two Sessions”, a set of meetings that provides one of the clearest signals of the country’s policy direction. In early March 2026, thousands of delegates from mainland China, Hong Kong, and Macau gathered in Beijing to deliberate on legislation, personnel changes, and the national budget for over a two-week period. During this time, the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC) meet concurrently, forming the core of China’s central governance process.
The NPC is China’s highest legislative body, composed of approximately 3,000 delegates. It is often described as the country’s parliament, although decision-making is largely shaped in advance by the Communist Party. The CPPCC, by contrast, is an advisory body of roughly 2,000 members, including business leaders, academics, and cultural figures. While it provides policy recommendations, it has no formal legislative authority or limited direct influence.
Since 1978, the Two Sessions have served as a crucial platform for announcing macroeconomic and socio-economic priorities. The meetings typically feature speeches by the premier, the announcement of economic targets, and updates on fiscal and military policy. They have also coincided with major political developments, including the removal of presidential term limits in 2018, which enabled Xi Jinping to secure a third term.
At the center of the Two Sessions is the annual Government Work Report (GWR). This document reviews the previous year’s performance and sets forward-looking targets across key indicators such as GDP growth, fiscal policy, employment, and inflation. As such, it provides a structured framework for understanding both the government’s short-term priorities and its broader strategic direction.
The Importance of the Two Sessions in China’s Policy Framework
The 2026 Two Sessions, which opened on March 4, carry particular significance due to their connection to the upcoming 15th Five-Year Plan (FYP) covering 2026 to 2030. Every five years, the NPC formally approves a new plan that outlines China’s medium-term economic and social strategy. Under Xi Jinping, the scope of these plans has expanded beyond traditional economic planning to include technological self-reliance, national security, and long-term industrial strategy.
Preparation for a new FYP begins well in advance. Early proposals are drafted, followed by multiple rounds of internal review before final approval. For the 15th FYP, key themes had already emerged in preliminary discussions, including strengthening domestic demand and accelerating development in advanced technologies such as artificial intelligence. Priorities highlighted in late 2025 included high-quality growth, industrial upgrading, closer alignment between economic policy and national security, and the expansion of green technologies.
A central feature of China’s Five-Year Plans is the use of “main indicators” (zhuyao zhibiao), which define the targets used to measure progress. These indicators are divided into binding targets, which carry stronger policy enforcement, and expected targets, which provide directional guidance. Under the 14th FYP, the total number of indicators was reduced from 33 to 20, reflecting a deliberate shift toward greater policy flexibility in response to external shocks such as trade tensions and the pandemic.
The composition of these indicators also reveals evolving policy priorities. The 14th FYP reduced the number of environmental targets, increased the emphasis on social welfare, and introduced new measures related to agricultural and energy security. This rebalancing reflects a broader strategic shift under Xi Jinping toward prioritizing national security and social stability alongside economic development.
Figure 1. Shifting Policy Priorities in China’s Five-Year Plans (10FYP – 14FYP)
Source: Asia Society
The Two Sessions are vital in converting strategic goals into practical policy measures, in addition to establishing long-term priorities. Last year, the president emphasized objectives related to innovation, market reforms, and the reduction of excessive competition. As a result, China’s R&D investment reached 2.8% of GDP, and the NPC revised the Anti-Unfair Competition Law to curb involutionary competition. This demonstrates how quickly priorities announced during the Two Sessions can translate into tangible policy outcomes.
At the global level, the rest of the world is closely observing these developments, as a central objective of the Five-Year Plan is to reduce economic reliance on the United States. China’s industrial and technological footprint has expanded rapidly in recent years, turning the country into a global technological powerhouse. These advancements result from a strongly coordinated government strategy discussed at previous NPC meetings, highlighting the importance of this event. This time, China seeks to lead in several technologies rather than only catching up. Amid rising trade tensions with the United States, Beijing is increasingly engaging European countries as alternative partners. However, the relationship remains complicated due to unresolved tensions over trade imbalances and unfair competition.
The Two Sessions represent a critical inflection point in China’s policy cycle, offering key insights into the country’s policy direction and long-term strategy. This strategic framework is reflected most clearly in the 2026 macroeconomic targets and policy measures, which provide a more concrete view of how these priorities are being implemented.
GDP Growth Target and Fiscal Expansion
China set its 2026 GDP growth target at around 5%, with expectations tilted toward the lower end of that range. This marks one of the lowest targets in decades and signals more than a cyclical adjustment. It reflects a structural shift in China’s growth model.
This adjustment reflects challenges including: a persistently weak domestic demand (particularly household consumption, which has not fully recovered from the pandemic), a long real estate downturn, a reduction in returns on infrastructure investment (traditional driver of growth), and difficult international conditions (slower global trade and geopolitical fragmentation).
Figure 2. China’s GDP Growth: A Long-Term Downward Trend (1960 – 2022)
The Two Sessions are vital in converting strategic goals into practical policy measures, in addition to establishing long-term priorities. Last year, the president emphasized objectives related to innovation, market reforms, and the reduction of excessive competition. As a result, China’s R&D investment reached 2.8% of GDP, and the NPC revised the Anti-Unfair Competition Law to curb involutionary competition. This demonstrates how quickly priorities announced during the Two Sessions can translate into tangible policy outcomes.
At the global level, the rest of the world is closely observing these developments, as a central objective of the Five-Year Plan is to reduce economic reliance on the United States. China’s industrial and technological footprint has expanded rapidly in recent years, turning the country into a global technological powerhouse. These advancements result from a strongly coordinated government strategy discussed at previous NPC meetings, highlighting the importance of this event. This time, China seeks to lead in several technologies rather than only catching up. Amid rising trade tensions with the United States, Beijing is increasingly engaging European countries as alternative partners. However, the relationship remains complicated due to unresolved tensions over trade imbalances and unfair competition.
The Two Sessions represent a critical inflection point in China’s policy cycle, offering key insights into the country’s policy direction and long-term strategy. This strategic framework is reflected most clearly in the 2026 macroeconomic targets and policy measures, which provide a more concrete view of how these priorities are being implemented.
GDP Growth Target and Fiscal Expansion
China set its 2026 GDP growth target at around 5%, with expectations tilted toward the lower end of that range. This marks one of the lowest targets in decades and signals more than a cyclical adjustment. It reflects a structural shift in China’s growth model.
This adjustment reflects challenges including: a persistently weak domestic demand (particularly household consumption, which has not fully recovered from the pandemic), a long real estate downturn, a reduction in returns on infrastructure investment (traditional driver of growth), and difficult international conditions (slower global trade and geopolitical fragmentation).
Figure 2. China’s GDP Growth: A Long-Term Downward Trend (1960 – 2022)
Source: World Bank Group
Against this backdrop, China has maintained a fiscal deficit of around 4% of GDP based on the official budget measure, placing it among the highest levels in recent years. However, the composition of fiscal policy differs markedly from previous stimulus cycles, such as those following the 2008 financial crisis or during the COVID-19 pandemic. Rather than broad-based expansion, current policy is more targeted and selective.
Fiscal support is increasingly directed toward specific priority areas. This includes greater reliance on central government support as local governments face tightening financial constraints, as well as the continued use of special-purpose bonds to finance infrastructure projects under stricter selection criteria. The objective is not to maximize short-term growth, but to maintain economic stability while limiting further debt accumulation, particularly at the local government level.
A central component of the 2026 policy framework is the stabilization of the financial system alongside a more strategic allocation of credit. The government announced a $44 billion capital injection into major state-owned banks through sovereign bond issuance. This measure is intended to strengthen bank balance sheets, sustain lending capacity, and prevent an unintended tightening of financial conditions.
Credit is being increasingly directed toward priority sectors such as semiconductors, artificial intelligence, and quantum computing. Combined with low-interest, policy-guided lending, this approach ensures that financial resources are channeled toward strategic industries rather than speculative activities, particularly in real estate. More broadly, it reflects a shift from expanding the quantity of credit to influencing its allocation in line with industrial policy objectives.
This shift is also evident in the broader policy stance, which is moving away from aggressive stimulus toward a framework centered on stabilization. A key measure in this context is the creation of a 100 billion yuan fiscal-financial coordination fund, designed to support domestic service consumption, small and medium-sized enterprises, and household income growth.
This shows that China faces a key problem: investment is still strong, but household consumption remains subdued. Addressing this imbalance requires not only stabilizing employment and raising incomes but also strengthening social safety nets, including healthcare and pension systems. The underlying objective is to reduce precautionary savings and encourage higher levels of consumption, thereby supporting a gradual rebalancing of the growth model.
Figure 3. Evolution of China’s GDP Growth Drivers (2017 – 2025)
Against this backdrop, China has maintained a fiscal deficit of around 4% of GDP based on the official budget measure, placing it among the highest levels in recent years. However, the composition of fiscal policy differs markedly from previous stimulus cycles, such as those following the 2008 financial crisis or during the COVID-19 pandemic. Rather than broad-based expansion, current policy is more targeted and selective.
Fiscal support is increasingly directed toward specific priority areas. This includes greater reliance on central government support as local governments face tightening financial constraints, as well as the continued use of special-purpose bonds to finance infrastructure projects under stricter selection criteria. The objective is not to maximize short-term growth, but to maintain economic stability while limiting further debt accumulation, particularly at the local government level.
A central component of the 2026 policy framework is the stabilization of the financial system alongside a more strategic allocation of credit. The government announced a $44 billion capital injection into major state-owned banks through sovereign bond issuance. This measure is intended to strengthen bank balance sheets, sustain lending capacity, and prevent an unintended tightening of financial conditions.
Credit is being increasingly directed toward priority sectors such as semiconductors, artificial intelligence, and quantum computing. Combined with low-interest, policy-guided lending, this approach ensures that financial resources are channeled toward strategic industries rather than speculative activities, particularly in real estate. More broadly, it reflects a shift from expanding the quantity of credit to influencing its allocation in line with industrial policy objectives.
This shift is also evident in the broader policy stance, which is moving away from aggressive stimulus toward a framework centered on stabilization. A key measure in this context is the creation of a 100 billion yuan fiscal-financial coordination fund, designed to support domestic service consumption, small and medium-sized enterprises, and household income growth.
This shows that China faces a key problem: investment is still strong, but household consumption remains subdued. Addressing this imbalance requires not only stabilizing employment and raising incomes but also strengthening social safety nets, including healthcare and pension systems. The underlying objective is to reduce precautionary savings and encourage higher levels of consumption, thereby supporting a gradual rebalancing of the growth model.
Figure 3. Evolution of China’s GDP Growth Drivers (2017 – 2025)
Source: National Bureau Statistics of China (NBS)
The property sector, once accounting for an estimated 25–30% of China’s GDP when including related industries, remains a significant drag on growth. Current policy confirms a structural shift in housing strategy, moving away from large-scale expansion toward a focus on quality, the completion of unfinished projects, and the reduction of excess inventory. In this framework, real estate is no longer positioned as a primary engine of growth, but rather as a sector to be stabilized and gradually reduced in size.
Nowhere is this shift in policy priorities more evident than in the semiconductor sector, where economic strategy, technological ambition, and geopolitical pressure intersect.
Expansion of China’s semiconductor “Big Fund”
Few technologies carry as much economic and strategic weight as semiconductors. Powering everything from consumer devices and automobiles to data centers and military systems, chips have become indispensable across virtually every sector of the global economy. The global semiconductor market is projected to reach $975 billion in 2026. For China, however, semiconductors represent more than an industrial opportunity. They are a direct test of the country’s ability to achieve technological self-reliance and sustain long-term competitiveness.
The stakes have risen considerably as the United States has progressively tightened export controls on chips and the machinery used to produce them, effectively turning semiconductor access into a geopolitical pressure point. As a result, China’s semiconductor strategy in 2026 is best understood not as catching up to industry trends, but as a calculated response to an external environment that is actively working to constrain its technological trajectory.
One of China's main tools for building up its chip industry is the National Integrated Circuit Industry Investment Fund, better known as the "Big Fund." In May 2024, China formally established Phase III of the fund with registered capital of about $47 billion, marking it as the largest one to date. This is not a continuation of what came before. Where earlier phases aimed at expanding domestic manufacturing capacity, Phase III is more focused on the specific chokepoints and technological bottlenecks that continue to limit China's chip capabilities. This is important because China's vulnerability lies not only in producing advanced chips but also in its dependence on foreign equipment and sending software, both of which have become more exposed under the tightening export controls. Together, these features suggest that China is shifting from its broad industrial support system to one that has a more targeted effort to address the specific weaknesses that continue to constrain its semiconductor ambitions.
Table 1. China’s Semiconductor “Big Fund”: Phases, Objectives, and Policy Focus
The property sector, once accounting for an estimated 25–30% of China’s GDP when including related industries, remains a significant drag on growth. Current policy confirms a structural shift in housing strategy, moving away from large-scale expansion toward a focus on quality, the completion of unfinished projects, and the reduction of excess inventory. In this framework, real estate is no longer positioned as a primary engine of growth, but rather as a sector to be stabilized and gradually reduced in size.
Nowhere is this shift in policy priorities more evident than in the semiconductor sector, where economic strategy, technological ambition, and geopolitical pressure intersect.
Expansion of China’s semiconductor “Big Fund”
Few technologies carry as much economic and strategic weight as semiconductors. Powering everything from consumer devices and automobiles to data centers and military systems, chips have become indispensable across virtually every sector of the global economy. The global semiconductor market is projected to reach $975 billion in 2026. For China, however, semiconductors represent more than an industrial opportunity. They are a direct test of the country’s ability to achieve technological self-reliance and sustain long-term competitiveness.
The stakes have risen considerably as the United States has progressively tightened export controls on chips and the machinery used to produce them, effectively turning semiconductor access into a geopolitical pressure point. As a result, China’s semiconductor strategy in 2026 is best understood not as catching up to industry trends, but as a calculated response to an external environment that is actively working to constrain its technological trajectory.
One of China's main tools for building up its chip industry is the National Integrated Circuit Industry Investment Fund, better known as the "Big Fund." In May 2024, China formally established Phase III of the fund with registered capital of about $47 billion, marking it as the largest one to date. This is not a continuation of what came before. Where earlier phases aimed at expanding domestic manufacturing capacity, Phase III is more focused on the specific chokepoints and technological bottlenecks that continue to limit China's chip capabilities. This is important because China's vulnerability lies not only in producing advanced chips but also in its dependence on foreign equipment and sending software, both of which have become more exposed under the tightening export controls. Together, these features suggest that China is shifting from its broad industrial support system to one that has a more targeted effort to address the specific weaknesses that continue to constrain its semiconductor ambitions.
Table 1. China’s Semiconductor “Big Fund”: Phases, Objectives, and Policy Focus
Source: State Council of the People’s Republic of China
Yet, China’s ambitions in semiconductors still bump up against a reality that no amount of domestic investment can easily change: the most advanced parts of the global chip supply chain remain heavily concentrated in Taiwan. Taiwan Semiconductor Manufacturing Company Limited (TSMC), the world's dedicated semiconductor foundry, captured 72% of the global pure-play foundry market in Q3 2025. The OECD has flagged the semiconductor value chain as highly complex and globally distributed, but also uniquely vulnerable to geographic concentration, and Taiwan sits at the sharpest point of that concentration. For China, this means that even as domestic investment accelerates, the frontier of advanced manufacturing remains concentrated outside the mainland. In this sense, for Beijing, Taiwan’s position poses a strategic challenge to its broader goal of technological self-reliance.
Figure 4. Pure Foundry Market Share Q3 2025
Yet, China’s ambitions in semiconductors still bump up against a reality that no amount of domestic investment can easily change: the most advanced parts of the global chip supply chain remain heavily concentrated in Taiwan. Taiwan Semiconductor Manufacturing Company Limited (TSMC), the world's dedicated semiconductor foundry, captured 72% of the global pure-play foundry market in Q3 2025. The OECD has flagged the semiconductor value chain as highly complex and globally distributed, but also uniquely vulnerable to geographic concentration, and Taiwan sits at the sharpest point of that concentration. For China, this means that even as domestic investment accelerates, the frontier of advanced manufacturing remains concentrated outside the mainland. In this sense, for Beijing, Taiwan’s position poses a strategic challenge to its broader goal of technological self-reliance.
Figure 4. Pure Foundry Market Share Q3 2025
Source: Counterpoint Technology Market Research
Table 2. Pure Foundry Market Share
Table 2. Pure Foundry Market Share
Source: Counterpoint Technology Market Research
Note.
Dependence Beyond Taiwan: Critical Foreign Technologies
However, China's semiconductor issue does not begin and end with Taiwan. Across the value chain, there are other foreign firms whose technologies China simply cannot do without, and that dependence is becoming increasingly difficult to ignore. Nvidia is the most visible example. Its AI accelerators have become the backbone of advanced computing globally, and its fiscal Q4 FY2026 data center revenue of just over $62 billion illustrates how central this segment has become to the global AI economy. For China, being cut off from it is not just a commercial problem; it directly affects AI development and long-term technological competitiveness. This is precisely what U.S. export controls have targeted.
These controls, first introduced in October 2022 and expanded in October 2023, tightened licensing requirements for China, extended controls to additional manufacturing equipment, and put new anti-circumvention rules in place. On the manufacturing side, ASML, based in The Netherlands, adds another layer to this picture. Its systems are essential for producing advanced chips, and Dutch export controls were further expanded in January 2025 to cover additional equipment categories, including metrology and inspection systems. As a result, China’s constraints are not limited to final products but extend across the entire production ecosystem.
Export Controls and the Expansion of Technological Constraints
Semiconductor policy has therefore become one of the clearest points of confrontation in the broader U.S.-China technology rivalry. Washington’s export-control framework, first introduced on October 7, 2022, and expanded on October 17, 2023, was designed not only to restrict China’s access to advanced computing chips but also to limit access to the manufacturing items needed to produce them. The U.S. Bureau of Industry and Security (BIS) states that these rules cover advanced computing integrated circuits, commodities containing such chips, and certain semiconductor manufacturing items directed at the People’s Republic of China. In practice, this matters because it widens the pressure from the final product to the entire production ecosystem: not just the most advanced processors, but also the software, tools, and equipment that support fabrication.
That is precisely why the current phase of China’s semiconductor strategy appears more comprehensive than earlier ones. Rather than treating chips as a single manufacturing challenge, Beijing is increasingly approaching the sector as a full-stack strategic dependency problem, stretching from design and equipment to packaging and advanced manufacturing. CSIS argues that allied export controls are reinforcing this localization drive by increasing the urgency of reducing reliance on foreign suppliers in critical parts of the semiconductor chain.
This also helps explain why semiconductor competition can no longer be understood as a purely commercial issue. The sector now sits at the intersection of industrial policy, military capability, and geopolitical leverage. The Organization for Economic Co-operation and Development (OECD) has emphasized that the semiconductor value chain is both highly globalized and vulnerable to concentration, which means that disruptions in a small number of firms or locations can have outsized international effects.
Taiwan remains the clearest example of this concentration. TSMC’s own reporting highlights the company’s centrality in advanced and specialty technologies and advanced packaging, while market data continues to show its overwhelming lead in pure-play foundry services. For China, this creates a dual constraint: the country remains dependent on foreign-controlled technological chokepoints, while the geopolitical environment surrounding those chokepoints is becoming increasingly tense. What emerges is a semiconductor race shaped not only by who can innovate faster, but by who can secure access, resilience, and strategic autonomy under conditions of growing distrust.
For 2026, the significance of China’s semiconductor push lies in this combination of ambition and constraint. The expansion of Big Fund III shows that Beijing is willing to commit larger and more targeted resources to the sector, especially in response to external pressure.
Taken together, these dynamics illustrate the limits of China’s semiconductor strategy. While the expansion of the Big Fund demonstrates a strong commitment to technological development, structural dependencies remain difficult to overcome. Semiconductors, therefore, represent the clearest test of China’s broader economic strategy, revealing both the scale of its industrial ambition and the constraints imposed by a more fragmented and competitive global technology order. These dynamics are not only shaping China’s industrial strategy but are also increasingly reflected in market behavior and investor positioning.
Market Implications: A Shift Toward Selectivity
China’s 2026 Two Sessions sends a clear message to markets. Policymakers remain committed to supporting growth, but the focus is increasingly selective and aligned with long-term strategic priorities. Instead of going back to the old model driven by property, Beijing is putting more money and policy backing behind sectors that fit its long-term strategy, especially semiconductors, artificial intelligence, and advanced manufacturing.
Thus, the real market story is probably not a broad rally across all Chinese equities, but a shift toward the industries that matter most to China’s push for technological independence. The 2026 growth target of 4.5% to 5% fits with that approach. The 2026 growth target of 4.5% to 5% reinforces this view, suggesting that policymakers are willing to tolerate slower aggregate growth in exchange for a more resilient and innovation-driven economic structure.
This has direct implications for equity markets. Semiconductor and AI-related firms are positioned to benefit most from the current policy framework, as they sit at the intersection of domestic industrial policy and external geopolitical pressure. Recent developments, including the focus on advanced technologies at SEMICON China 2026, highlight the scale and urgency of investment in these sectors. At the same time, the rapid expansion of demand, particularly in AI, is beginning to expose supply-side constraints, reinforcing both the opportunity and the limits of the current strategy.
Real estate, by comparison, does not look like it is coming back as the center of the investment case. The policy language now is much more about stabilizing the sector and improving quality, rather than expanding housing at all costs. That may help reduce some of the downside risk, but it is not the same thing as a full return to the old property-driven growth model. Property stocks could still see short-term relief, especially the more state-backed developers, but they still look less likely than chip and AI companies to drive any lasting rerating in Chinese equities. The pressure around Vanke in recent months is a good reminder that even large developers with state links are still seen as vulnerable.
The yuan tells a similar story. Beijing wants to avoid financial instability, but it also does not want the currency to strengthen so much that it hurts competitiveness. Recent market moves suggest that the yuan has stayed steady, trading around 6.89–6.91 per dollar in late March 2026 rather than sliding into a more disorderly depreciation. That kind of stability matters because it supports investor confidence while China channels resources into strategic sectors. It also helps make sure domestic policy support is not undermined by capital outflows.
Figure 5. Exchange Rate Stability During China’s Economic Rebalancing (2025 – 2026)
Note.
- TSMC: Taiwan Semiconductor Manufacturing Company Limited – Taiwan
- Samsung Foundry – South Korea
- SMIC: Semiconductor Manufacturing International Corporation – China's largest domestic foundry
- UMC: United Microelectronics Corporation – Taiwan
- Global Foundries – United States
Dependence Beyond Taiwan: Critical Foreign Technologies
However, China's semiconductor issue does not begin and end with Taiwan. Across the value chain, there are other foreign firms whose technologies China simply cannot do without, and that dependence is becoming increasingly difficult to ignore. Nvidia is the most visible example. Its AI accelerators have become the backbone of advanced computing globally, and its fiscal Q4 FY2026 data center revenue of just over $62 billion illustrates how central this segment has become to the global AI economy. For China, being cut off from it is not just a commercial problem; it directly affects AI development and long-term technological competitiveness. This is precisely what U.S. export controls have targeted.
These controls, first introduced in October 2022 and expanded in October 2023, tightened licensing requirements for China, extended controls to additional manufacturing equipment, and put new anti-circumvention rules in place. On the manufacturing side, ASML, based in The Netherlands, adds another layer to this picture. Its systems are essential for producing advanced chips, and Dutch export controls were further expanded in January 2025 to cover additional equipment categories, including metrology and inspection systems. As a result, China’s constraints are not limited to final products but extend across the entire production ecosystem.
Export Controls and the Expansion of Technological Constraints
Semiconductor policy has therefore become one of the clearest points of confrontation in the broader U.S.-China technology rivalry. Washington’s export-control framework, first introduced on October 7, 2022, and expanded on October 17, 2023, was designed not only to restrict China’s access to advanced computing chips but also to limit access to the manufacturing items needed to produce them. The U.S. Bureau of Industry and Security (BIS) states that these rules cover advanced computing integrated circuits, commodities containing such chips, and certain semiconductor manufacturing items directed at the People’s Republic of China. In practice, this matters because it widens the pressure from the final product to the entire production ecosystem: not just the most advanced processors, but also the software, tools, and equipment that support fabrication.
That is precisely why the current phase of China’s semiconductor strategy appears more comprehensive than earlier ones. Rather than treating chips as a single manufacturing challenge, Beijing is increasingly approaching the sector as a full-stack strategic dependency problem, stretching from design and equipment to packaging and advanced manufacturing. CSIS argues that allied export controls are reinforcing this localization drive by increasing the urgency of reducing reliance on foreign suppliers in critical parts of the semiconductor chain.
This also helps explain why semiconductor competition can no longer be understood as a purely commercial issue. The sector now sits at the intersection of industrial policy, military capability, and geopolitical leverage. The Organization for Economic Co-operation and Development (OECD) has emphasized that the semiconductor value chain is both highly globalized and vulnerable to concentration, which means that disruptions in a small number of firms or locations can have outsized international effects.
Taiwan remains the clearest example of this concentration. TSMC’s own reporting highlights the company’s centrality in advanced and specialty technologies and advanced packaging, while market data continues to show its overwhelming lead in pure-play foundry services. For China, this creates a dual constraint: the country remains dependent on foreign-controlled technological chokepoints, while the geopolitical environment surrounding those chokepoints is becoming increasingly tense. What emerges is a semiconductor race shaped not only by who can innovate faster, but by who can secure access, resilience, and strategic autonomy under conditions of growing distrust.
For 2026, the significance of China’s semiconductor push lies in this combination of ambition and constraint. The expansion of Big Fund III shows that Beijing is willing to commit larger and more targeted resources to the sector, especially in response to external pressure.
Taken together, these dynamics illustrate the limits of China’s semiconductor strategy. While the expansion of the Big Fund demonstrates a strong commitment to technological development, structural dependencies remain difficult to overcome. Semiconductors, therefore, represent the clearest test of China’s broader economic strategy, revealing both the scale of its industrial ambition and the constraints imposed by a more fragmented and competitive global technology order. These dynamics are not only shaping China’s industrial strategy but are also increasingly reflected in market behavior and investor positioning.
Market Implications: A Shift Toward Selectivity
China’s 2026 Two Sessions sends a clear message to markets. Policymakers remain committed to supporting growth, but the focus is increasingly selective and aligned with long-term strategic priorities. Instead of going back to the old model driven by property, Beijing is putting more money and policy backing behind sectors that fit its long-term strategy, especially semiconductors, artificial intelligence, and advanced manufacturing.
Thus, the real market story is probably not a broad rally across all Chinese equities, but a shift toward the industries that matter most to China’s push for technological independence. The 2026 growth target of 4.5% to 5% fits with that approach. The 2026 growth target of 4.5% to 5% reinforces this view, suggesting that policymakers are willing to tolerate slower aggregate growth in exchange for a more resilient and innovation-driven economic structure.
This has direct implications for equity markets. Semiconductor and AI-related firms are positioned to benefit most from the current policy framework, as they sit at the intersection of domestic industrial policy and external geopolitical pressure. Recent developments, including the focus on advanced technologies at SEMICON China 2026, highlight the scale and urgency of investment in these sectors. At the same time, the rapid expansion of demand, particularly in AI, is beginning to expose supply-side constraints, reinforcing both the opportunity and the limits of the current strategy.
Real estate, by comparison, does not look like it is coming back as the center of the investment case. The policy language now is much more about stabilizing the sector and improving quality, rather than expanding housing at all costs. That may help reduce some of the downside risk, but it is not the same thing as a full return to the old property-driven growth model. Property stocks could still see short-term relief, especially the more state-backed developers, but they still look less likely than chip and AI companies to drive any lasting rerating in Chinese equities. The pressure around Vanke in recent months is a good reminder that even large developers with state links are still seen as vulnerable.
The yuan tells a similar story. Beijing wants to avoid financial instability, but it also does not want the currency to strengthen so much that it hurts competitiveness. Recent market moves suggest that the yuan has stayed steady, trading around 6.89–6.91 per dollar in late March 2026 rather than sliding into a more disorderly depreciation. That kind of stability matters because it supports investor confidence while China channels resources into strategic sectors. It also helps make sure domestic policy support is not undermined by capital outflows.
Figure 5. Exchange Rate Stability During China’s Economic Rebalancing (2025 – 2026)
Source: World Bank Group
The global effects are likely to be uneven. If China’s strategy works, the biggest spillovers may come not from a classic property recovery but from stronger demand for semiconductors, industrial equipment, advanced materials, electrification infrastructure, and data-center capacity. The main beneficiaries may increasingly be the materials tied to new-economy investment rather than the bulk commodities that depended heavily on construction. There are also implications for US and European technology companies. China’s push for semiconductor self-sufficiency adds more pressure on foreign chipmakers and on equipment suppliers that are already dealing with export controls. Across emerging Asia, the impact will probably vary too. Economies with strong exposure to electronics and high-value manufacturing may gain more than those that relied more on China’s old construction-led model.
For investors, the outlook can be framed through two scenarios. In the stronger scenario, targeted fiscal support, bank recapitalization, and industrial financing do enough to lift confidence without bringing back the imbalances of the property era. Under this scenario, Chinese semiconductor and AI stocks could keep outperforming, the yuan could stay relatively stable, and investors might start to see China more as a strategic technology story than just a cyclical rebound trade. In the weaker scenario, the policies may support a few priority sectors without doing much for broader domestic demand. If households remain cautious and property stays weak, then market gains could stay narrow, with tech doing well but the wider equity market still lacking real momentum.
Recent Signals from Policy and Markets
A few recent developments help illustrate this shift. China’s plan to inject 300 billion yuan, roughly $44 billion, into major state banks through a special treasury bond issue shows that financial stability is still seen as essential to the broader growth strategy. Reporting from SEMICON China also showed that AI demand is already pushing up capital spending and capacity expansion in the domestic chip sector, which highlights how quickly policy support and market demand are feeding into each other. Meanwhile, Beijing Capital’s attempt to raise up to $500 million through a dollar bond suggests that real estate financing has not disappeared, but investor demand is still selective and focused more on state-backed names than on the sector. Put together, these examples suggest that the real significance of the 2026 Two Sessions is not the promise of a dramatic short-term rebound, but a clearer signal about which parts of the Chinese economy Beijing still wants investors to believe in.
Conclusion
China’s 2026 Two Sessions make one point unmistakably clear. The country is not returning to its previous growth model. It is building a different one.
A GDP target of around 5%, targeted fiscal expansion, directed credit, and an intensified push for technological self-reliance all point to the same shift. Growth is no longer something to be maximized at all costs. It is something to be shaped, constrained, and aligned with state priorities. This raises a more fundamental question. Can a system that allocates growth so deliberately still generate the dynamism needed to sustain it?
If the answer is yes, China may succeed in creating a more resilient and strategically autonomous economy, one that is less volatile and less exposed to external shocks. If the answer is no, the risk is a slower, more uneven path in which capital is concentrated, but productivity fails to keep pace.
The outcome will depend on whether targeted investment translates into genuine innovation, whether consumption can recover without a property-driven boost, and whether external constraints tighten faster than domestic capabilities can adapt.
What is clear is that the terms of the debate have changed. The question is no longer how fast China can grow. It is whether it can grow on its own terms, and whether those terms are sustainable in a world where economic strategy and geopolitical competition are increasingly inseparable.
By: Aaron Smith Soko, Paula Anderlini, Lilas Spitzer, and Alexandria Chaliovski
Sources
The global effects are likely to be uneven. If China’s strategy works, the biggest spillovers may come not from a classic property recovery but from stronger demand for semiconductors, industrial equipment, advanced materials, electrification infrastructure, and data-center capacity. The main beneficiaries may increasingly be the materials tied to new-economy investment rather than the bulk commodities that depended heavily on construction. There are also implications for US and European technology companies. China’s push for semiconductor self-sufficiency adds more pressure on foreign chipmakers and on equipment suppliers that are already dealing with export controls. Across emerging Asia, the impact will probably vary too. Economies with strong exposure to electronics and high-value manufacturing may gain more than those that relied more on China’s old construction-led model.
For investors, the outlook can be framed through two scenarios. In the stronger scenario, targeted fiscal support, bank recapitalization, and industrial financing do enough to lift confidence without bringing back the imbalances of the property era. Under this scenario, Chinese semiconductor and AI stocks could keep outperforming, the yuan could stay relatively stable, and investors might start to see China more as a strategic technology story than just a cyclical rebound trade. In the weaker scenario, the policies may support a few priority sectors without doing much for broader domestic demand. If households remain cautious and property stays weak, then market gains could stay narrow, with tech doing well but the wider equity market still lacking real momentum.
Recent Signals from Policy and Markets
A few recent developments help illustrate this shift. China’s plan to inject 300 billion yuan, roughly $44 billion, into major state banks through a special treasury bond issue shows that financial stability is still seen as essential to the broader growth strategy. Reporting from SEMICON China also showed that AI demand is already pushing up capital spending and capacity expansion in the domestic chip sector, which highlights how quickly policy support and market demand are feeding into each other. Meanwhile, Beijing Capital’s attempt to raise up to $500 million through a dollar bond suggests that real estate financing has not disappeared, but investor demand is still selective and focused more on state-backed names than on the sector. Put together, these examples suggest that the real significance of the 2026 Two Sessions is not the promise of a dramatic short-term rebound, but a clearer signal about which parts of the Chinese economy Beijing still wants investors to believe in.
Conclusion
China’s 2026 Two Sessions make one point unmistakably clear. The country is not returning to its previous growth model. It is building a different one.
A GDP target of around 5%, targeted fiscal expansion, directed credit, and an intensified push for technological self-reliance all point to the same shift. Growth is no longer something to be maximized at all costs. It is something to be shaped, constrained, and aligned with state priorities. This raises a more fundamental question. Can a system that allocates growth so deliberately still generate the dynamism needed to sustain it?
If the answer is yes, China may succeed in creating a more resilient and strategically autonomous economy, one that is less volatile and less exposed to external shocks. If the answer is no, the risk is a slower, more uneven path in which capital is concentrated, but productivity fails to keep pace.
The outcome will depend on whether targeted investment translates into genuine innovation, whether consumption can recover without a property-driven boost, and whether external constraints tighten faster than domestic capabilities can adapt.
What is clear is that the terms of the debate have changed. The question is no longer how fast China can grow. It is whether it can grow on its own terms, and whether those terms are sustainable in a world where economic strategy and geopolitical competition are increasingly inseparable.
By: Aaron Smith Soko, Paula Anderlini, Lilas Spitzer, and Alexandria Chaliovski
Sources
- World Semiconductor Trade Statistics
- Taiwan Semiconductor Manufacturing Company Limited
- Organization for Economic Co-operation and Development
- Center for Strategic and International Studies
- State Council of the People’s Republic of China
- Counterpoint Research
- Government of the Netherlands
- NVIDIA
- ASML Holding N.V.
- Financial Times
- Government of China
- Hang Seng Indexes Company Limited
- SEMI
- Bloomberg
- National Bureau of Statistics of China
- World Bank Group