China has unveiled a five-year strategic plan prioritizing technological breakthroughs and widespread AI adoption across its industries, framing this drive as a national security imperative in its rivalry with the US. The plan aims to develop "new productive forces" to counter economic challenges like the middle-income trap and US export controls, while acknowledging domestic imbalances and setting a slightly lower growth target.
The government announced increased spending on defense and R&D, but offered only a vague pledge to boost household consumption, dampening expectations for a significant rebalancing away from its investment-led model. The strategy explicitly focuses on maintaining supply chain dominance, particularly in areas like rare earths, and advancing sectors such as quantum computing and AI-powered robotics.
Analysts note the plan represents a high-stakes bet on technology and advanced manufacturing to build a new economic foundation, as China manages a "controlled glide" in growth amid property sector risks and trade tensions.
China on Thursday set out a five-year roadmap to turbocharge scientific breakthroughs and embed AI across its industrial economic machine, framing technological dominance as a core national security goal in its sharpening rivalry with the US.
In its 15th strategic plan since adopting Soviet-style quinquennial policy cycles in the 1950s, Beijing has outlined a bet that technology - not consumption - will drive its next phase of development despite growing structural pressures.
The objectives reflect President Xi Jinping's vision of developing "new productive forces" to escape the middle-income trap, counter the demographic downturn, and enhance self-sufficiency to insulate China from US export controls.
At the opening of the annual parliament meeting, Premier Li Qiang praised China's ability âto withstand US President Donald Trump's â tariff hikes, but â said "multilateralism and free trade are under severe threat," announcing 7% increases in the defence budget, as well as in research and development.
Li acknowledged an "acute" imbalance between strong supply and weak demand and risks from a worsening property sector crisis and high local government debt.
These challenges have pushed Beijing to âset a slightly lower growth target of 4.5%-5% for 2026, down from last year's 5%, which was met largely through a one-fifth surge in its trade surplus to a record $1.2 trillion.
As widely expected, the five-year plan also pledged a "notable" increase âin household consumption, without specifying figures, dampening expectations for demand-side reforms.
Last year's trade punches with the Trump administration, which briefly escalated to embargo-like conditions of triple-digit tariffs, showed the importance of its supply chain dominance as leverage.
China vowed to maintain its competitive edge in rare earths.
The US and its allies are still years away from breaking their reliance on China for these materials vital to everything from AI chips to defence systems.
"China's government remains laser-focused on spurring technological breakthroughs and high-tech investment," said Fred Neumann, chief Asia economist at HSBC. "In part, this is motivated by competition with the United States for control over the â technologies of the âfuture."
"Many international observers may be left disappointed, therefore, by slower progress in rebalancing the economy away from investment towards consumption."
China invests 20 percentage points of GDP more than the global average, âwhile its households spend roughly 20 âpoints less - a state-controlled, debt-driven development model that analysts say creates industrial overcapacity and fuels trade tensions abroad and deflationary pressures at home.
"The rebalancing challenge that China faces, and â that will take years to achieve, is implicitly acknowledged by a weaker growth target for the coming year," Neumann added.
The five-year plan âaims to raise the value-added of "core digital economy industries" to 12.5% of GDP and roll out new policies for an integrated national data market, AI âadoption across the full supply chain, and an AI security system.
Ambitions span biomedicine, quantum tech, atomic-scale manufacturing, hyper-scale computing clusters, nuclear fusion, brain-computer interfaces and even commercialising AI-powered humanoid robots.
"Beijing is trying to manage a 'controlled glide' in growth while building a new economy based on technology rather than property," said Andy Ji, Asian FX & rates analyst at ITC Markets.
"It is a high-stakes rebalancing where the government is betting the house on AI and advanced manufacturing."
State-owned enterprises were enrolled to create demand for made-in-China semiconductors and drones.
The 141-page plan name-checks AI over 50 times, envisioning robots plugging labour shortages and factories operating with little human oversight. It builds on a breakout year for Chinese developers - led by DeepSeek - who rapidly closed the gap with U.S. leaders such as OpenAI and Gemini.
But the five-year plan also lists bigger ambitions in areas China already dominates: it accounts for 85% of the world's electric vehicle charging stations, but still aims to double their number âwithin three years.
Steady stimulus, careful capacity cuts
Economists say a lower growth target allows Beijing to experiment with cutting overcapacity in low-value added industries, but cautioned that this did not mean a departure from its production-focused growth model.
Beijing also appeared to suggest tightened supervision of local government spending, some of which had gone into unproductive infrastructure projects, warning many officials had "a misguided understanding âof what it means to âperform well."
The US Supreme Court's decision to strike down some â of Trump's tariffs and expectations that a meeting between the two countries' presidents later in March could stabilise relations in the short-term bode well for such adjustments.
Dan Wang, China director at Eurasia Group, said Beijing appeared to take advantage of "the trade truce" to absorb the job market pressure created by any production curbs.
Stimulus-wise, China plans a budget deficit of 4.0% of GDP and has set special debt issuance quotas at 1.3 trillion yuan ($188.5 billion) âfor the central government and 4.4 trillion yuan for local authorities - all unchanged from last year.
China pledged to raise minimum monthly pensions by 20 yuan per person and basic medical insurance subsidies for rural, non-working people by 24 yuan - marginal, rather than structural, moves. It said it wants to increase education spending, subsidise childcare and reform public hospitals, acknowledging the demographic downturn.
Yuan Yuwei, fund manager at Trinity Synergy Investment, warned that China's growth and policy aims for this year - prepared at the end of 2025 - do not take into account the US-Israeli attacks in Iran.
"That's very negative for China, which counts the Strait of Hormuz as a crucial trade route," said Yuan.
In its 15th strategic plan since adopting Soviet-style quinquennial policy cycles in the 1950s, Beijing has outlined a bet that technology - not consumption - will drive its next phase of development despite growing structural pressures.
The objectives reflect President Xi Jinping's vision of developing "new productive forces" to escape the middle-income trap, counter the demographic downturn, and enhance self-sufficiency to insulate China from US export controls.
At the opening of the annual parliament meeting, Premier Li Qiang praised China's ability âto withstand US President Donald Trump's â tariff hikes, but â said "multilateralism and free trade are under severe threat," announcing 7% increases in the defence budget, as well as in research and development.
Li acknowledged an "acute" imbalance between strong supply and weak demand and risks from a worsening property sector crisis and high local government debt.
These challenges have pushed Beijing to âset a slightly lower growth target of 4.5%-5% for 2026, down from last year's 5%, which was met largely through a one-fifth surge in its trade surplus to a record $1.2 trillion.
As widely expected, the five-year plan also pledged a "notable" increase âin household consumption, without specifying figures, dampening expectations for demand-side reforms.
Last year's trade punches with the Trump administration, which briefly escalated to embargo-like conditions of triple-digit tariffs, showed the importance of its supply chain dominance as leverage.
China vowed to maintain its competitive edge in rare earths.
The US and its allies are still years away from breaking their reliance on China for these materials vital to everything from AI chips to defence systems.
"China's government remains laser-focused on spurring technological breakthroughs and high-tech investment," said Fred Neumann, chief Asia economist at HSBC. "In part, this is motivated by competition with the United States for control over the â technologies of the âfuture."
"Many international observers may be left disappointed, therefore, by slower progress in rebalancing the economy away from investment towards consumption."
China invests 20 percentage points of GDP more than the global average, âwhile its households spend roughly 20 âpoints less - a state-controlled, debt-driven development model that analysts say creates industrial overcapacity and fuels trade tensions abroad and deflationary pressures at home.
"The rebalancing challenge that China faces, and â that will take years to achieve, is implicitly acknowledged by a weaker growth target for the coming year," Neumann added.
The five-year plan âaims to raise the value-added of "core digital economy industries" to 12.5% of GDP and roll out new policies for an integrated national data market, AI âadoption across the full supply chain, and an AI security system.
Ambitions span biomedicine, quantum tech, atomic-scale manufacturing, hyper-scale computing clusters, nuclear fusion, brain-computer interfaces and even commercialising AI-powered humanoid robots.
"Beijing is trying to manage a 'controlled glide' in growth while building a new economy based on technology rather than property," said Andy Ji, Asian FX & rates analyst at ITC Markets.
"It is a high-stakes rebalancing where the government is betting the house on AI and advanced manufacturing."
State-owned enterprises were enrolled to create demand for made-in-China semiconductors and drones.
The 141-page plan name-checks AI over 50 times, envisioning robots plugging labour shortages and factories operating with little human oversight. It builds on a breakout year for Chinese developers - led by DeepSeek - who rapidly closed the gap with U.S. leaders such as OpenAI and Gemini.
But the five-year plan also lists bigger ambitions in areas China already dominates: it accounts for 85% of the world's electric vehicle charging stations, but still aims to double their number âwithin three years.
Steady stimulus, careful capacity cuts
Economists say a lower growth target allows Beijing to experiment with cutting overcapacity in low-value added industries, but cautioned that this did not mean a departure from its production-focused growth model.
Beijing also appeared to suggest tightened supervision of local government spending, some of which had gone into unproductive infrastructure projects, warning many officials had "a misguided understanding âof what it means to âperform well."
The US Supreme Court's decision to strike down some â of Trump's tariffs and expectations that a meeting between the two countries' presidents later in March could stabilise relations in the short-term bode well for such adjustments.
Dan Wang, China director at Eurasia Group, said Beijing appeared to take advantage of "the trade truce" to absorb the job market pressure created by any production curbs.
Stimulus-wise, China plans a budget deficit of 4.0% of GDP and has set special debt issuance quotas at 1.3 trillion yuan ($188.5 billion) âfor the central government and 4.4 trillion yuan for local authorities - all unchanged from last year.
China pledged to raise minimum monthly pensions by 20 yuan per person and basic medical insurance subsidies for rural, non-working people by 24 yuan - marginal, rather than structural, moves. It said it wants to increase education spending, subsidise childcare and reform public hospitals, acknowledging the demographic downturn.
Yuan Yuwei, fund manager at Trinity Synergy Investment, warned that China's growth and policy aims for this year - prepared at the end of 2025 - do not take into account the US-Israeli attacks in Iran.
"That's very negative for China, which counts the Strait of Hormuz as a crucial trade route," said Yuan.
Meridiano
