What to Watch at the Two Sessions
Industrial policy discipline, consumption reform, and the demand-side plays hiding behind the welfare headlines
China’s annual Two Sessions are set to convene in Beijing starting March 4, with thousands of NPC and CPPCC delegates expected to attend. This year is different. Beyond the usual annual targets laid out in the Government Work Report, Beijing will also officially publish the 15th Five-Year Plan covering 2026 to 2030. That makes this a once-in-five-years moment, and the policy signals in these documents will shape how resources are allocated, which industries get backed, and how the economy is steered for the rest of the decade.
Growth Target
For three years, Beijing set its GDP target at around 5%. But Neil Thomas, a fellow at the Asia Society Policy Institute and a longtime China watcher, has made a compelling case for a lower target, citing the provincial-level Two Sessions held in recent weeks. Of the 31 provincial-level governments, 21 lowered their growth targets. Guangdong, the largest provincial economy, came down to 4.5 to 5%, while Zhejiang, which had exceeded 5.5% in 2025, trimmed its target to 5 to 5.5%. When the big provinces start managing expectations downward, the national target tends to follow.
Most analysts expect the headline number to land somewhere between 4.5% and 5%. The IMF projects 4.5%, revised up by 0.3 percentage points from its October forecast.
But I also want to introduce another way to look at this. The central government and local governments don't always see GDP targets the same way. For local officials, these targets are tied directly to performance reviews and competition for resources, so they tend to be more conservative in adjusting targets. For the central government, it also needs to consider shaping expectations across the economy. The number itself can become a kind of self-fulfilling prophecy. During last year’s Central Economic Work Conference, it reiterated the importance of improving expectation management mechanisms and boosting public confidence. (健全预期管理机制，提振社会信心) So, I would say the central government actually has a stronger incentive to hold the line at around 5, without imposing a rigid target that would pressure local governments into rushing to meet it.
The 15th Five-Year Plan
This is the real substance of the session. The 15th FYP covers 2026 to 2030 and is meant to serve as a bridge between the goals set at the 20th Party Congress and the target of basically realizing socialist modernization by 2035. The core priorities are by now familiar: technological self-reliance, industrial upgrading, expanded domestic demand, and reaching moderately developed country per capita GDP by the end of the next decade. None of this is new, but the framing is getting more explicit with each policy cycle, and the resource allocation behind it is getting more concrete.
On the industrial side, the focus will be on what Beijing calls new quality productive forces（新质生产力）. Expect the plan to lay out accelerated support for sectors like commercial aerospace, the low-altitude economy, biomedicine, quantum technology, embodied intelligence, and 6G, alongside digital and green transformation of traditional industries. This is where the bulk of industrial policy resources will flow over the next five years, and the FYP will likely formalize much of what has already been signaled through sector-specific plans and local pilot programs.
But formalising support is only half the story. The other half is disciplining how that support gets deployed locally. Over the past two years, the rush to develop new quality productive forces has led to widespread duplication at the provincial and municipal level, with dozens of cities simultaneously launching low-altitude economy zones or AI industrial parks, often with little regard for local comparative advantage. The Politburo's pre-session meeting on February 27 used the phrase "因地制宜发展新质生产力, " emphasising accordance with local conditions, which signals that Beijing is aware of this problem and may use the FYP to impose more structured differentiation. If the plan includes clearer guidance on regional industrial specialisation, it would mark a shift from simply directing more resources toward strategic sectors to also correcting how those resources are allocated across geographies. That would be progress.
The more interesting question is whether the FYP can move beyond the supply side. Boosting consumption has been on the agenda for years, but in practice most policy energy still flows toward production and investment. The State Council’s Work Plan for Accelerating the Cultivation of New Growth Points in Service Consumption, released at the end of January, is a good example. Most of the measures focus on supply-side relaxation, opening up market access and removing regulatory barriers. This is not surprising. The government simply has more levers to pull on the supply side, and fewer direct tools on the demand side. But without genuine progress on household income and consumption, the political goal of sustaining growth becomes harder to deliver on with industrial policy alone. How the FYP balances these two sides will be one of the most important things to read for when the text comes out.
The Trade War Backdrop
The external environment heading into this year’s Two Sessions is very different from even a few months ago, and that gives China more room for maneuvering.
On February 20, the Supreme Court ruled that IEEPA does not authorize the President to impose tariffs. This has immediately reshuffled the trade situation. China's trade-weighted tariff burden will decline.
Trump responded quickly. He imposed a global 15% duty under Section 122 of the 1974 Trade Act, a different legal authority with its own set of constraints and expiration timelines. And the timing of what comes next is significant: According to Reuters, Trump is scheduled to travel to China from March 31 to April 2 to meet with Xi and discuss trade. The Two Sessions will wrap up around March 11, so Beijing will be crafting policy language with this diplomatic window firmly in mind.
After all the worst-case tariff scenarios have been taken off the table, at least for now. That decreased the likelihood that the central gov would announce a massive stimulus package. Instead, expect measured, targeted language that signals openness to negotiation while preparing for potential future escalation.
Other Things Worth Watching
The top priority coming out of the December CEWC is reviving domestic demand, and the specifics of how Beijing plans to do that will be closely scrutinized. I would watch for measures aimed at investing in people（投资于人）, including healthcare, elderly care, childcare, and education system reform.
The introduction of birth subsidies at the national level is a good start. It shows the central government is willing to put real money behind demographic concerns rather than just issuing guidance documents. And the broader logic is straightforward. When households feel insecure about medical bills, retirement, or the cost of raising a child, they save more and spend less.
But China simply does not have the fiscal capacity to build out a comprehensive welfare state in any short timeframe. Local governments are already stretched after years of land revenue decline and debt issue. The central government has more balance sheet room, but that room is being pulled in every direction at once. Infrastructure, industrial upgrade, and debt resolution.
There is another obstacle. The deeply rooted perception that generous welfare breeds laziness（福利养懒汉）is not just a talking point among fiscal conservatives in the government. It reflects a wider cultural attitude shaped by decades of compressed modernity, where China went from widespread poverty to middle-income status within a single generation. In societies that experienced this kind of rapid transition, the instinct to tie social provision tightly to labor participation runs deep. Shifting that mindset takes time, probably more than one Five-Year Plan cycle.
So from a practical standpoint, I am watching two things more closely than the welfare expansion headlines.
First is the implementation of paid leave. China’s labor law already guarantees paid annual leave, but enforcement is weak, especially in the private sector. If Beijing gets serious about making this a reality, the downstream effects on service consumption could be considerable. Tourism, hospitality, and cultural spending. It is one of those rare policy levers that costs the government little in direct fiscal terms but can meaningfully change household behavior.
Second, and more fundamental, is the Urban-Rural Resident Income Growth Plan（城乡居民增收计划）. Consumption is ultimately a function of income. I’d be watching whether the plan includes concrete mechanisms for raising labor’s share of national income, through minimum wage adjustments, transfer payment reform, or more direct and fundamental- increasing pensions for rural residents. But I would not expect a large increase like policy advisor Liu Shijin suggested last year, given the budget's affordability.
The welfare and social spending narrative will get a lot of attention during the Two Sessions, and rightly so. But the binding constraints are fiscal and cultural, and neither fact will change quickly. The more actionable space lies in income growth and institutional reforms like paid leave that unlock existing but suppressed demand. That is where I would focus.