China Sets Modest 2026 Growth Target as Beijing Doubles Down on AI-Driven Industrial Policy

BEIJING — China has set its most modest economic growth target in more than three decades, but paired it with one of its most ambitious campaigns yet to reshape the country’s industrial base around artificial intelligence, advanced manufacturing and green technology.

A lower growth goal, bigger state-led push

Unveiling the annual Report on the Work of the Government at the opening of the National People’s Congress on March 5, Premier Li Qiang told nearly 3,000 delegates in the Great Hall of the People that China would aim for economic growth of 4.5% to 5% in 2026. The goal, slightly below the 5% target of recent years, reflects mounting pressure from a prolonged property downturn, high local government debt and soft consumer demand.

Yet the report, delivered on behalf of the State Council, laid out a muscular policy program that leans more heavily than ever on state-directed investment, long-term bonds and industrial policy to drive what the leadership calls “high-quality development.”

“We will work to foster new quality productive forces at a faster pace and build a modern industrial system,” Li said, using a phrase that has become a central slogan of President Xi Jinping’s economic agenda.

The 2026 plan, the first year of China’s 15th Five-Year Plan (2026–2030), centers on expanding the role of AI and the digital economy, upgrading traditional factories, and pushing into frontier technologies from quantum computing to humanoid robots. It also signals Beijing’s determination to press ahead with industrial support even as trading partners accuse it of fueling overcapacity in sectors such as electric vehicles and solar panels.

Fiscal and monetary support

The government set a fiscal deficit of about 4% of gross domestic product, with a deficit of roughly 5.9 trillion yuan ($820 billion) and what officials described as “proactive” fiscal policy. It will issue 1.3 trillion yuan in ultra-long special treasury bonds to fund what Li called “major national strategies, security in key areas, large-scale equipment upgrades and the trade-in of consumer goods,” along with 4.4 trillion yuan in special-purpose local government bonds.

Monetary policy will remain “prudent and appropriately accommodative,” the report said, with room for cuts in banks’ reserve requirement ratio and interest rates. Authorities pledged to steer more lending toward domestic demand, technology innovation and small and medium-size enterprises, while keeping the yuan “basically stable at an adaptive and balanced level.”

An economy reorganized around AI

The emphasis on technology runs through the document. The word “innovation” appears repeatedly, and the report sets a medium-term goal for research and development spending to exceed about 3.2% of GDP by 2030, up from 2.8% last year. It also aims to lift the value added of core digital economy industries to 12.5% of GDP, compared with more than 10.5% in 2025.

A central pillar is the “artificial intelligence plus” initiative, or “AI Plus,” which first appeared in the work report two years ago as a broad call for more AI applications. In 2026, Li said the government would “advance and expand the AI Plus initiative,” describing AI as a foundation for “creating new forms of smart economy.”

The report promises faster deployment of “new-generation intelligent terminals and AI agents” and the scaled-up use of AI in “key sectors and fields.” It calls for constructing “hyper-scale intelligent computing clusters,” upgrading 5G industrial internet networks and expanding satellite internet and public cloud services.

Beijing also moved, for the first time in a work report, to acknowledge the social impact of AI on jobs. The government will “promote employment and entrepreneurship in response to AI development,” the document states—language that officials and state media later highlighted as recognition that automation and AI could displace some workers even as they create new roles.

From chips to humanoid robots: targeted “future industries”

Beyond AI, the document lists a long roster of “emerging pillar industries” and “industries of the future” that will receive targeted backing. Integrated circuits, aviation and aerospace, biomedicine and what it calls the “low-altitude economy”—including drones and electric vertical takeoff and landing aircraft—are slated for support as new pillars.

Future industries singled out include “future energy,” quantum technology, “embodied AI” such as humanoid and mobile robots, brain-computer interfaces and sixth-generation (6G) mobile communications. For these areas, the government said it would establish mechanisms “to increase funding and share risks,” effectively promising more state co-investment and venture capital guidance.

To upgrade existing factories, Beijing will earmark about 200 billion yuan from its ultra-long bonds for large-scale equipment renewal in key industries. The report announces a “new round” of projects to strengthen critical manufacturing supply chains, reinforce industrial foundations and form “national advanced manufacturing clusters.” Small and medium-size firms are urged to accelerate their digital transformation through a “cloud-big data-AI” initiative and the construction of smart factories and intelligent supply chains.

Trade tensions and an overcapacity debate

The manufacturing push builds on 2025 results that officials cited as evidence of progress. Last year, China’s economy grew 5% to 140.19 trillion yuan, according to the report. Value added in high-tech manufacturing rose 9.4%, and equipment manufacturing was up 9.2%. Output of industrial robots increased 28%, while production of integrated circuits grew 10.9%. New energy vehicle production exceeded 16 million units, and the number of EV charging facilities passed 20 million.

Those same industries are at the center of trade tensions with the United States and the European Union, where officials and industry groups have complained of state-backed Chinese overcapacity depressing global prices. China’s goods trade surplus reached about $1.2 trillion last year, and the International Monetary Fund and other institutions have urged Beijing to scale back some industrial subsidies and shift more support to households.

Consumption support via trade-ins—and tighter subsidy discipline

The work report instead links industrial policy more tightly to domestic consumption, particularly through trade-in programs. Li said trade-in schemes for cars, home appliances and other consumer goods generated 2.6 trillion yuan in sales in 2025. This year, the government plans to channel 250 billion yuan from its ultra-long bonds specifically into expanded trade-ins, alongside a 100 billion yuan “fiscal-financial coordination fund” to offer loan interest subsidies, guarantees and risk compensation.

At the same time, the report pledges to “better regulate policies on tax and fee reductions and government subsidies” in order to curb “vicious competition” among local governments. Beijing has pushed a nationwide campaign to build a “unified national market,” with new regulations to limit local investment incentives that distort competition. Analysts say that suggests a shift from fragmented, province-level subsidy races toward more centralized, and possibly larger, national support packages.

Reassurance for private and foreign investors

The document also tries to reassure private and foreign investors after several years of regulatory crackdowns and weak private investment. It promises full implementation of a new law on promoting the private sector, “equal treatment in access to factors of production, market entry and policy support,” and stronger protection of property rights. State-owned enterprises are encouraged to “take the lead in providing application scenarios” for emerging technologies and to open their industrial ecosystems, including data and platforms, to other market participants.

On opening to the outside, the government says it will “steadily expand institutional opening up” and “actively work to join” trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and the Digital Economy Partnership Agreement. It pledges wider access for foreign investors in fields including value-added telecommunications, medical services and biotechnology, while reiterating goals of “science and technology self-reliance and strength.”

Jobs, pensions and the “silver economy”

Domestically, the report maintains an “employment-first” stance, targeting more than 12 million new urban jobs and a surveyed urban unemployment rate of around 5.5%. It outlines modest increases in basic pensions for rural residents and non-working urban residents, expanded health insurance subsidies, pilot programs for long-term care insurance and support for what officials call the “silver economy” focused on older citizens.

People’s Daily, the Communist Party’s flagship newspaper, later wrote that “every policy measure and every figure reflects care for people’s real concerns,” underscoring the political importance of tying abstract industrial goals to visible social benefits.

A pivot with global consequences

Taken together, the 2026 work report and the accompanying five-year plan sketch a long-term attempt to pivot China away from its decades-old reliance on construction and low-end exports toward an economy built around AI, chips, green technology and advanced manufacturing. How that strategy plays out will matter well beyond China’s borders, shaping everything from the price of electric cars and solar panels to the pace of global AI adoption and the trajectory of trade disputes in the years ahead.