China’s Central Economic Work Conference sets priorities on innovation and domestic demand revival for 2026

Highlights: China’s Central Economic Work Conference 2025 (CEWC) reaffirmed the policy priorities to promote innovation-driven structural growth, industrial upgrading and domestic demand revival via consumption and investment. In response to broad-based weakness in November activity data and recent renewed downturn in the real estate sector, the CEWC made a more forceful call for policy stimulus to stop the investment decline and to stabilise the property market. The pro-growth and pro-reform policy messages from the CEWC reinforced our mild overweight stance on China equities and Chinese hard currency bonds.

• To support domestic demand recovery, we expect the Chinese government to adopt a proactive fiscal policy with the fiscal deficit target being set at 4 per cent of 2026 GDP and additional stimulus from special government bonds. We expect the People’s Bank of China (PBoC) to deliver 20bp of interest rate cuts and 50bp of RRR cuts in 2026
• China’s 15th Five-Year Plan (2026-2030) prioritises technology self-reliance and innovation-led growth model, supercharging a new wave of AI investment. Our theme on China’s Innovation Champions focuses on national champions across the AI supply chains, spanning from semiconductor, AI cloud and agents, software, to physical AI and AI-enabled biotech leaders
• We adopt a barbell strategy to balance our geared exposure to the AI theme and innovation leaders with our strong focus on high dividend quality companies. We expect 2026e China earnings growth to benefit from both cyclical drivers (consumption subsidies and local government funding) and structural policy support (AI innovation and anti-involution)
• Consensus estimates expect MSCI China EPS growth to rebound to 12.5 per cent in 2026 from 2.3 per cent in 2025 while valuation remains undemanding at 12.3x 2026e consensus P/E with rising ROE to 11.2 per cent in 2026 from 10.9 per cent in 2025
• We are mildly overweight Chinese hard currency bonds with focus on medium duration of 5-7 years. We favour quality Chinese TMT issuers with strong balance sheets and solid credit fundamentals, as well as Macau gaming credit with strong financials
• China’s domestic-led growth agenda should support mild RMB appreciation. We hold a neutral view on the RMB, with USD-RMB forecasts at 7.05 by end-2025 and 6.95 by end-2026