• Announcements so far suggest that China remains focused on its domestic agenda
• Easing monetary and fiscal policies will continue to drip-feed cash into the economy
• We favour domestic consumption, advanced tech and high dividend stocks

The Two Sessions i.e. the CPPCC (Chinese People’s Political Consultative Conference) and NPC (National People’s Congress) started this week and is not over yet. Nevertheless, it is possible to draw a few early conclusions from announcements made so far.

#1: Staying the course

The first is that China appears determined not to let President Trump dictate the agenda. Many of this year’s targets are in line with previously-set expectations and forecasts, leaving some room for a stimulus upsize if required later in the year. For example, GDP growth for 2025 is set at “around 5 percent”, the same as last year.

Against a backdrop of US tariffs, global economists are suggesting that 4.5 percent GDP growth might be more realistic. But China is signalling that it has the ability to withstand any Trump-led economic shocks.

#2. Cash at the ready

While China’s stimulus measures never seem to be enough for markets, this week the authorities pointed to yet another stimulus package. They announced that the fiscal deficit target would be raised from 3 percent in 2024 to “around 4 percent”, which amounts to an extra RMB1.6 trillion of potential funds above the RMB4.1 trillion already earmarked.

In addition, RMB500 billion is being made available for bank recapitalisation, RMB300 billion for white goods trade-in subsidies, and RMB4.4 trillion of Local Government Special Bonds which can be used for debt swaps and land acquisition. The overall fiscal package announced this week adds up to RMB 2.4 trillion (USD33 billion) or 1.7 percent of China’s GDP.

#3. Deflation remains a concern

The CPI target announced this week was set at “around 2 percent”. This is the lowest in two decades, and an acknowledgement of China’s deflationary problem, which has already lasted over two years. Economists put this down to consumers’ reluctance to spend amid falling property prices, and excess supply of manufactured goods.

As Japan watchers will know, a deflationary cycle can last a long time. Lower demand perpetuates economic weakness which further depresses demand, and the Chinese authorities want to break this cycle as soon as possible via a “looser” monetary stance. This week, there is much focus on boosting consumption by improving the mechanism for regular pay increases and increases in basis pensions, while at the same time, expanding re-lending facilities for affordable housing.

#4. High-quality production

This year’s Two Sessions appear to mark a gear-change in China’s industrial focus, based perhaps on an assessment that its science and innovation agenda is now well-embedded. Even in Washington, a congressional panel recently acknowledged that the “Made in China 2025” initiative launched in 2015 to reinforce China technological independence had achieved many of its objectives. In fact, there seems to be over-capacity in some tech sectors.

With more tech wars looming and DeepSeek’s success, China will want to be seen at the forefront of high-quality industrial production and leading the next AI-powered industrial revolution. As such, industries such as biomanufacturing, quantum technology, embodied intelligence, 6G dominated discussions this week. AI adoption was particularly highlighted. In contrast, renewable energy and EVs were not mentioned.

What are the investment implications?

Developments at the Two Sessions and so far this year cause us to continue our positive outlook for companies within the domestic consumption space. We think that these companies will enjoy a policy tailwind, especially in light of hardening trade restrictions.

We also favour companies at the cutting edge of new technologies, including those in the AI supply chain, biotech, 6G, and robotics space. We believe that there is good potential in the low-altitude economy, that is, activities in airspace below 1,000 metres. This includes applications such as drones for telecommunications, infrastructure surveys and goods deliveries.

Alongside these high growth sectors, we think the market is broadening to include high dividend-paying stocks. Given China’s growing bias towards an accommodative monetary policy, there is a downward pressure on China bond yields. This is likely to encourage more investors to seek equity dividends, which has climbed to a near-decade high of 3 percent. There is also a large jump in the number of companies paying dividends compared to last year.

We are cautious on firms with extensive overseas exposure. We have also become increasingly wary of renewable energy firms in sectors which have overcapacity such as wind and biomass (that is energy from organic materials derived from plants or animals).