Top leaders pledged to strengthen “cross-cyclical” policy adjustments – the first time that phrase signaling longer-term planning had appeared in a Politburo readout since December 2023
China’s top leaders made strengthening domestic demand their top economic priority for 2026, while hinting at a measured approach to stimulus. “We must adhere to domestic demand as the main driver and build a strong domestic market,” the Communist Party’s decision-making Politburo led by President Xi Jinping pledged during its December huddle. Authorities also vowed to grow “new productive forces,” according to the official readout, suggesting strong measures to curtail manufacturing were unlikely at least in some key sectors. Top leaders pledged to strengthen “cross-cyclical” policy adjustments — the first time that phrase signaling longer-term planning had appeared in a Politburo readout since December 2023. Officials also kept their “proactive” fiscal and “moderately loose” monetary stances in play. “The overall tone is to both stimulate demand and stabilize supply,” said Jacqueline Rong, chief China economist at BNP Paribas SA. Beijing signaled it’s trying to balance loosening fiscal and monetary policy, while keeping risks such as debt sustainability in check, she added: “Therefore, next year’s policy outlook is likely to lean toward only modest easing.” Market reaction was mixed. The CSI 300, China’s onshore equity benchmark, extended gains of up to 1.2% before paring, while Chinese shares traded in Hong Kong closed 1.3% lower. The offshore yuan barely moved. The guidance suggests support will at least match this year’s level. Fiscal policy is likely to play a dominant role, accompanied by incremental monetary easing. Senior leaders’ commitment to boosting domestic demand follows a loss of economic momentum in recent months amid a rapid pullback in investment. While exports defying US tariffs have powered China’s trade surplus this year past the $1 trillion mark for the first time, Beijing is facing calls from Europe and elsewhere to rebalance its economy. Still, China’s resilient export engine has helped the Asian country stay on track to meet its around 5% growth target in 2025, with only moderate stimulus needed. That could reduce leaders’ incentive to change track. “The statement suggests gradual, mild stimulating policies to be implemented in 2026, focusing more on consumption,” said Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd. He maintains a forecast that China will reduce the amount of cash banks must keep in reserve in the first quarter, and make an interest rate cut in the April-June period. The December huddle typically sets the tone for the Central Economic Work Conference, which in turn provides details about policy priorities for the following year. That meeting typically attended by the Politburo, as well as ministers, provincial leaders and heads of state-owned firms, is expected to take place in the coming days. More specific measures and numerical targets such as the economic growth goal and the size of the budget deficit won’t be revealed until China’s parliament opens its annual session in early March. “The meeting is mostly about the continuation of current policy settings, as there’s no need for a big course correction now,” He Wei, China economist at Gavekal Dragonomics, said of the Politburo session. “There’s no surprise.” Economists are expecting export growth to moderate in 2026 while consumption will likely struggle to pick up from one of its weakest stretches in years. Trade tensions with the rest of the world could intensify after Chinese products flooded other markets when exports to the US slumped under President Donald Trump’s levies. Even if a recent trade truce with the US holds, Chinese manufacturers are still vulnerable to Trump’s industry-specific tariffs policy. More stimulus is likely needed to spur consumption, which has decelerated since June as the boost faded from government subsidies for the flagship cash-for-clunkers program. Faced with tapering demand for durable goods, officials have indicated they are looking at services as the next area of focus in their drive to revive consumption. In the Monday readout, preventing and resolving risks in key areas — usually a reference to dangers in local government debt, property and financial sectors — was lowered three places to the bottom of a list of eight major priorities for 2026. The change “may reflect policymakers’ assessment that progress has been made in reducing risk,” said Ding Shuang, chief economist for Greater China and north Asia at Standard Chartered Plc. “More fiscal resources are likely to be devoted to boosting infrastructure investment and social spending,” he added.
