Indecision 2026 | The weekly recap

Beijing’s annual government work reports (GWR) are supposed to set the direction for economic policy in the year ahead – but 2026’s iteration raised more questions than it answered.

ICYMI: On March 5, the annual meeting of China’s legislature (NPC) kicked off – as is customary – with the premier reading his work report, which set various economic targets for 2026.

Among them was the GDP growth target, set at 4.5-5% – unusual but not unexpected.

• Beijing doesn’t typically set a range.
• For the past three years, it’s been “around 5%.”

What really threw us for a loop was the rider the 2026 target came with: Striving for “better in practice.”

Talk about muddying the waters.

• We’ve previously argued that a 4.5% target would have signaled that Beijing was willing to tolerate slower growth in the name of structural adjustment.
• A 5% target would signal that growth was the priority, leaving little scope to address problems like overcapacity.

But now Beijing wants to have its cake and eat it too: The Government Work Report is saying “go for growth,” “hold the line,” and “fix the problems” all at once – objectives that are difficult to reconcile.

Further muddying the outlook is the borrowing limits the government has set.

• With the property sector and anti-involution efforts weighing on growth, infrastructure investment will play an important role in supporting the economy this year.
• But it’s unclear how much additional funding Beijing has earmarked for public works this year.

Here’s the rundown of infrastructure-related borrowing outlined in the report:

• Beijing has earmarked RMB 755 billion for investment from the central government budget, up RMB 20 billion from 2025.
• It plans to issue RMB 800 billion in ultra-long-term special treasury bonds (STB) for infrastructure – or, specifically, “major national strategies and security capacity building in key areas” – unchanged from 2025.
• The policy banks will inject RMB 800 billion into infrastructure projects, up from RMB 500 billion in 2025.
• Local governments will be permitted to issue RMB 4.4 trillion in special purpose bonds (SPBs). That’s the same as 2025 quota set in March last year – but local authorities were cleared to issue an additional RMB 200 billion in October 2025.

For those keeping score at home, this translates into an additional RMB 120 billion compared to 2025 – a paltry 1.8% increase.

• But the headline comparison is misleading because the SPB quota now covers a wide range of uses beyond infrastructure.

Traditionally, SPBs were used only for public works.

• But over the last few years, they’ve increasingly been used for a range of purposes, including recapitalizing banks, paying arrears to state suppliers and contractors, and funding land buybacks from developers.
• Of the RMB 4.6 trillion raised last year from SPBs, only about RMB 3.2 trillion went toward infrastructure.

Even SPBs publicly earmarked for infrastructure have been diverted to other uses.

• For example, of last year’s RMB 3.2 trillion infrastructure SPBs, almost half a trillion were used to buy back idle land from local government financing vehicles – which has no material impact on infrastructure spending.

The Government Work Report promises to place infrastructure-SPBs “under separate management” – which likely means local governments will be told how much debt they can use to fund infrastructure spending.

• But we have no idea when they will be told – and whether these quotas will be publicly released.
• Until then, local officials, businesses, and investors will struggle to truly understand how stimulatory infrastructure spending this year will be.

Which gets to the bigger point: Beijing’s growth targets and debt quotas are a critical signaling mechanism for what is expected of local governments and state firms.

• Clear signals translate into purposeful action – and help anchor market expectations about what’s in store.

But the lack of clarity around the amount of infrastructure funding available – and the ambiguity of this year’s GDP target – only serves to muddy the waters. 

In theory, this approach may give local authorities license to choose their own path. 

• In reality, they’re likely to spend endless hours trying to work out exactly what Beijing wants and hedge their bets rather than take decisive action.

The bottom line: This was always going to be a tough year for the Chinese economy.

• A lack of clear signaling at the top is going to make it tougher.

Dinny McMahon, Head of Markets Research, Trivium China

What you missed

Econ and finance

On February 27, the central bank (PBoC) said it will scrap a 20% risk reserve requirement for forward forex contracts, effective March 2.

• The change lowers the cost of betting against the CNY in the derivatives market.
• The yuan is hovering near three-year highs after surging 8% against the dollar since last April, which the PBoC has sought to temper with weaker daily USD/CNY fixings.
• The latest move marks a clear escalation in efforts to prevent one-way bets on the yuan.

Large volumes of local government debt were used to finance last year’s unproductive land buyback scheme – at the expense of infrastructure investment.

• In late 2024, authorities greenlit the issuance of “land reserve” special purpose bonds (SPBs) to finance local governments’ acquisition of idle land plots from property developers.
• Their goal was to help developers offload unused land in exchange for liquidity – which in theory could revive construction activity.
• But in practice, participation was largely confined to local government financing vehicles  which had amassed large inventories of idle land.

Commodities

China will feel the economic burn of conflict in Iran, but state reserves of key commodities will blunt the worst effects.

• China buys over 10% of its seaborne crude from Iran, and some 20% of global oil flows transit the Strait of Hormuz, creating the potential for significant disruption.
• But Beijing has powerful buffers in place, including massive strategic crude reserves – likely totaling around four months of imports – that can be released in the event of any shortage.
• It also has state-managed retail fuel prices – featuring a price ceiling that limits extreme volatility and protects consumers.

Tech

At a press conference on Tuesday, Ministry of Foreign Affairs (MoFA) spokesperson Mao Ning addressed reports that the US is partnering with AI companies to enable attacks on Chinese critical infrastructure.

• According to the FT, the US Department of Defense is working with leading AI firms to develop tools for automated reconnaissance of Chinese power grids and sensitive networks – with the goal of enabling cyberattacks in a potential conflict.
• MoFA seized on the issue to cast the US as a bad actor: “The US has long been the biggest source of instability in cyberspace… Even before AI, the US was already conducting cyberattacks and pre-positioning on China’s critical infrastructure.”

On February 28, the cyberspace administration (CAC) and seven other agencies released measures for identifying platforms with large numbers of underage users.

• Internet platforms will be designated as having a significant impact on minors if they are designed specifically for minors and have 10 million+ registered users, or are general-purpose platforms with 10 million+ registered minor users.
• Platforms that believe they meet the criteria must self-report and apply for designation.
• Platforms must self-report every three years, or when a platform’s minor user base surges significantly.

Foreign affairs

On February 27 and 28, the Ministry of Commerce (MofCom) announced plans to slash two tranches of retaliatory tariffs on Canadian agricultural products, making good on the trade ceasefire it struck with Ottawa in January.

• This includes the elimination of anti-discrimination tariffs on Canadian peas, canola meal, lobsters, and crabs from March 1.
• It also includes the reduction of anti-dumping tariffs on Canadian canola – also known as rapeseed – from the soaring 75.8% preliminary duties set in August to 5.9%, also from March 1.
• Chinese imports of Canadian canola oil and pork remain subject to anti-discrimination tariffs of 100% and 25%, respectively, likely because Beijing wants to retain some bargaining leverage.

US-China

US President Donald Trump’s state visit to China – scheduled for the end of March – is at risk of fizzling.

• While Beijing prefers months of meticulous pre-negotiation at the working level, Trump has shown limited appetite for the traditional interagency process, preferring to wing it.
• As one former US official close to planning details told SCMP: “You have a handful of people who have never done this before, putting together what may be the most consequential trip in the president’s administration on a wing and a prayer.”
• According to SCMP sources, any deal is likely to involve: “Chinese commitments to buy energy, aviation, and agricultural products, as well as other ‘low-hanging fruit’ such as visa-free travel arrangements for American citizens.”

Top Chinese and US trade negotiators are set to meet late next week in Paris to discuss preparations for Trump’s visit to China – which are behind schedule.

A few major curveballs have complicated preparations:

• The US Supreme Court’s decision to invalidate key Trump tariffs – reshuffling the deck and weakening the US’s hand in trade negotiations.
• US-Israeli strikes on Iran, which – along with Tehran’s retaliation – have jolted global markets and disrupted critical energy and fertilizer exports, drawing Beijing’s condemnation.
• Reports that the US is contemplating a major arms sale to Taiwan.

As always, it was a busy week in China.

• Thank goodness Trivium China is here to make sure you don’t miss any of the developments that matter.