3 February 2026 | 6:29PM HKT Economics Research China: Local "Two Sessions" point to a lower national growth target this year than last year Bottom line: As of today (3 February), 29 out of the 31 mainland Chinese provinces have officially unveiled their 2026 growth targets during their local "Two Sessions". Among the 29 provinces, 19 lowered their growth targets for 2026. Given recent policy communications, media reports, and signals from local "Two Sessions", we now expect policymakers to lower the nation ...

Summary of Key Points from the Conference Call Industry Overview - **Industry**: China Economic Outlook - **Context**: The call discusses the economic sentiment in China, focusing on provincial growth targets and housing market adjustments. Core Insights 1. **Provincial Growth Targets**: Provinces are adjusting their growth targets down to approximately 5% on average, a decrease from around 5.4% in the previous year, indicating a pragmatic approach to economic growth [1][2][4] 2. **National Target Implications**: A potential national target of 4.5-5% could facilitate economic rebalancing, allowing for a focus on quality over quantity in growth [1][4] 3. **Housing Market Adjustments**: The easing of the "three red lines" policy for developers suggests a shift in regulatory constraints, with cash inflow issues becoming a more pressing concern than previous debt ratios [2][4] 4. **Pragmatic Mindset**: The reduction in growth targets reflects a more practical mindset among provincial leaders, prioritizing sustainable growth over aggressive targets [4] 5. **Infrastructure and Consumption**: - Infrastructure spending is robust, with net government bond issuance reaching Rmb1.2 trillion, the highest for January on record [6] - However, consumer spending remains weak, particularly in passenger car sales, which have seen a significant decline [6][20] Additional Important Points 1. **Policy Direction**: Future policies are expected to focus on targeted demand-side measures in the housing market, including mortgage subsidies and easing purchase restrictions [5] 2. **Economic Fundamentals**: - Infrastructure activity is strong, with rebar shipments and cement demand showing positive trends [6] - Exports are stable, with container throughput indicating continued growth [6] 3. **Consumer Trends**: The decline in passenger car sales and home appliance sales suggests ongoing challenges in consumer confidence and spending [6][20] This summary encapsulates the key points discussed in the conference call, highlighting the current economic sentiment in China and the implications for various sectors.

Summary of Key Points from the Conference Call on China's Economic Outlook for 2026 Industry Overview - The report focuses on China's economic outlook as it enters the 15th Five-Year Plan (FYP) in 2026, emphasizing growth targets, manufacturing advancements, export dynamics, fiscal policy, and geopolitical considerations. Core Insights and Arguments 1. Growth Targets - Policymakers are expected to target "around 5%" growth for 2026 and "at least 4.5%" for the remainder of the 15th FYP period, with an anticipated real growth of 4.7% in 2026 amid ongoing deflation [4][6][18]. 2. High-End Manufacturing - The 15th FYP emphasizes advanced manufacturing and AI development, with progress noted in green technology and heavy industry. However, technological gaps remain, particularly in high-tech sectors [4][29][30]. 3. Export Dynamics - Nominal export growth is projected to slow to approximately 3.4% in 2026, with net exports contributing about 1.0 percentage point to GDP growth. Rising trade barriers and stricter enforcement are significant challenges, although China's cost advantage supports exports [4][70][54]. 4. Fiscal Policy and Consumption Support - The central government's budget deficit is projected at around 4% of GDP, with total deficits (central plus local) at approximately 11%. Fiscal support for consumption is expected to increase modestly to about 0.5% of GDP, focusing on subsidies for various sectors [4][9][80]. 5. Deflation and Economic Adjustments - CPI is expected to average 0.7% in 2026, with persistent PPI deflation due to excess supply. A shift in policy support towards consumption and services is necessary for durable reflation [4][10][6]. 6. Housing Market Correction - The housing correction is likely to continue without decisive measures to stabilize prices or stimulate demand. A comprehensive approach is needed to address the ongoing downturn in housing activity [4][11][78]. 7. Currency Appreciation - Modest, managed appreciation of the CNY is expected, influenced by a high current account surplus and capital outflows. Claims of undervaluation are considered overstated, with competitiveness driven more by efficiency and deflation [4][12][69]. 8. AI Adoption and Technological Development - China's AI+ initiative aims for broad integration across industries, focusing on mature-node silicon and advanced packaging. However, productivity gains depend on effective workflow integration and governance to manage labor market disruptions [4][13][46]. 9. Geopolitical Landscape - Elevated geopolitical risks characterize the start of 2026, with potential shifts in regional relationships. The response from China has been muted, but changes in ties with neighboring economies are anticipated [4][14]. Additional Important Insights - The report highlights the challenges posed by Western tech export controls and the need for China to enhance its self-sufficiency in critical technologies. The ongoing geopolitical tensions may further complicate China's economic landscape [4][50][68]. - The report also notes the importance of balancing fiscal support between consumption and investment, as weak income gains and high savings rates hinder consumer spending [4][83][80]. This summary encapsulates the critical points discussed in the conference call regarding China's economic outlook for 2026, providing insights into growth targets, manufacturing advancements, export dynamics, fiscal policy, and geopolitical considerations.

Summary of Key Points from the Conference Call Industry Overview - **Industry Focus**: Mining and commodities, particularly in relation to China's economic performance and demand for various materials including iron ore, base metals, coal, and battery raw materials [2][3][4][5][6][9]. Core Insights and Arguments Economic Performance in China - **GDP Growth**: China achieved a 5.0% GDP growth target primarily driven by export strength, but domestic consumption remains weak, indicating potential downside risks for commodity demand [2][9]. - **Retail Sales**: Retail sales growth was reported at +0.9% year-on-year, below the previous +1.3% and consensus of +1.0%, highlighting weak consumer demand [4][9]. - **Property Sector**: The downturn in the property sector is worsening, with construction starts and sales down -20% and -10% year-on-year respectively, contributing to overall economic fragility [3][4]. Commodity-Specific Insights - **Iron Ore**: - Crude steel output decreased by -10% year-on-year in December, with iron ore port inventories rising by +7% month-on-month, indicating potential oversupply [3]. - Forecast for iron ore prices to decline to US$102/ton in Q1 2026 from a current spot price of approximately US$104/ton [3]. - **Base Metals**: - Weak consumption signals significant downside risks for industrial metals like copper and aluminum, with industrial production growth at +5.2% year-on-year, slightly above expectations [4]. - The ongoing property market weakness is reducing consumer wealth and confidence, further impacting demand for base metals [4][9]. - **Coal**: - China's coal output dropped -2% month-on-month, while imports surged +33% month-on-month, driven by higher domestic prices [5]. - Seaborne coal prices increased by +17% to approximately US$235/ton since early December 2025, supported by strong demand from China and India [5]. - **Battery Raw Materials**: - Electric vehicle (EV) output remained stable with an increase of +18% year-on-year, indicating strong demand for battery raw materials [6]. Future Outlook - **Stimulus Expectations**: Anticipation of policy changes aimed at stimulating domestic consumption as the 15th Five-Year Plan is finalized in March 2026, which could provide upside risks for commodities [2][9]. - **Market Risks**: The mining sector faces inherent risks including volatile commodity prices, political, financial, and operational challenges that could significantly impact performance [54]. Additional Important Content - **Economic Indicators**: Key economic indicators such as manufacturing PMI, retail sales, and industrial production growth are critical for assessing the health of the Chinese economy and its impact on commodity demand [10]. - **Inventory Levels**: Rising inventory levels in various commodities, particularly iron ore, suggest potential oversupply and price pressures in the near term [3][9]. This summary encapsulates the critical insights from the conference call, focusing on the current state and future outlook of the mining industry in relation to China's economic performance and commodity demand.

Core Insights - The financing leasing industry in China is undergoing significant structural adjustments due to tightening regulations, local government debt resolution, and declining market interest rates, leading to a reduction in the number of companies from over 12,000 in 2020 to approximately 7,000 by mid-2025 [1][7][12] - The industry is shifting towards a model that emphasizes "financing + asset utilization" to better serve the real economy, as traditional reliance on local government financing platforms and "quasi-credit" business models is no longer sustainable [1][2][12] External Environment - Regulatory policies are guiding the industry back to its core functions, emphasizing compliance and the need to support the real economy [8][12] - The introduction of policies such as the prohibition of new non-equipment sale-leaseback transactions and the goal of increasing direct leasing business to at least 50% by 2026 are significant regulatory shifts [9][10] - The impact of local government debt resolution policies is constraining traditional financing avenues for leasing companies, particularly in the local government financing sector [13][17] Opportunities for Transformation - National policies promoting large-scale equipment updates and consumer product exchanges align well with the financing leasing model, creating new market opportunities [2][25] - The "dual carbon" strategy and the 14th Five-Year Plan are generating substantial demand in green energy, high-end equipment, and industrial upgrades, further opening avenues for financing leasing companies [2][26] - The transformation of local government financing platforms into market-oriented operations is creating new collaboration opportunities in areas like new infrastructure and urban operations [2][27] Transformation Challenges - Financial leasing companies are experiencing a faster transformation with significant improvements in direct leasing business, while commercial leasing companies face more challenges and slower growth [2][3] - Companies undergoing transformation are facing pressures such as slowing business growth and declining profitability, highlighting the need for time to cultivate new industrial sectors amidst intense competition [2][3] - Popular transformation directions include aviation, green energy, high-end equipment, and small microfinance, but these sectors are becoming increasingly crowded, leading to intensified competition [2][3] Future Outlook - The success of financing leasing companies' transformations will depend on their ability to avoid following trends blindly and instead carve out unique paths that align with their resource endowments [3] - Companies with industrial backgrounds should integrate deeply into the industrial chain, while smaller firms need to specialize in niche areas to enhance their professional capabilities and customer loyalty [3] - Although transformation may lead to short-term growth challenges and profitability fluctuations, adapting to regulations and focusing on industry depth will be crucial for long-term sustainability and competitiveness [3]

Summary of National Railway (NR) Annual Working Conference Industry Overview - The conference focused on the railway equipment industry, specifically high-speed rail (HSR) and general railway operations in China. Key Highlights 1. **New Rail/HSR Completion Targets** - NR aims for total new rail/HSR completion of 3,000 km and 2,000 km per annum during 2026-30, which is a 20% reduction compared to the actual completion from 2021-25. This indicates a demand for approximately 140 standard trainsets of multiple units (MU) annually from new line completions [1][2][7]. 2. **Passenger and Freight Volume Growth** - NR projects rail passenger volumes to grow by 3.5% year-on-year and freight volumes by 1.5% year-on-year in 2026, which is a moderation from the previous year's growth rates of 4.2% and 2.1%, respectively [1][5]. 3. **Demand Stability for MUs** - The expected demand for new MUs is projected to remain stable at around 250 standard units annually from 2026 to 2030, considering both new line completions and replacement demand [1][6]. 4. **CR450 Model Development** - The new CR450 "Fuxin" MU is set to complete its model design and operational assessment in 2026, with initial orders expected in early 2027, marking a gradual replacement of the existing CRH "Harmony" MUs [1][6]. 5. **Financial Performance Metrics** - In 2025, total railway fixed asset investment (FAI) reached RMB 901.5 billion, a 6.0% increase from RMB 850.6 billion in 2024. New line additions were 3,109 km, slightly down by 0.1% from 2024 [4]. 6. **Historical High in Revenue** - Total railway transportation revenue achieved RMB 1.02 trillion, reflecting a 3.1% year-on-year increase, surpassing the target of RMB 1.01 trillion set at the beginning of the year [4]. Additional Insights - The dual-track ratio and electrified ratio are targeted to reach 64% and 78% respectively by 2030, compared to 60.8% and 75.8% in 2024 [7]. - The shift in powertrain regulations from diesel engines to power battery systems may influence the demand for new locomotives, potentially reducing tendering demand in 2026-27 [6]. Ratings and Recommendations - Neutral ratings are maintained for Times Electric A (688187.SS) and CRRC A (601766.SS), while Buy ratings are upheld for Times Electric H (3898.HK) and CRRC H (1766.HK) based on valuation and dividend yield considerations [1].

Group 1: Innovation and Development Plans - China has entered the top 10 in the global innovation ranking for 2025, marking a significant achievement in its development strategy [1] - The completion of the 14th Five-Year Plan (2021-2025) has set the stage for the new development blueprint as the country transitions into the 15th Five-Year Plan [2] - The 15th Five-Year Plan is viewed as a critical stage for reinforcing social and economic foundations, aiming for modernization by 2035 [4] Group 2: Governance and Policy Making - The governance process for the 15th Five-Year Plan has been characterized by inclusive and consultative approaches, with Xi Jinping leading a high-level strategy team [5][6] - Public opinions were solicited through a month-long online consultation campaign, ensuring citizen voices were considered in the planning process [7] - Xi's field visits and leadership meetings prior to the October plenum reflect a governance philosophy that balances strategic vision with practical realities [8] Group 3: Global Engagement and Diplomacy - The year 2025 was marked by China's proactive role in global governance, highlighted by the Global Governance Initiative (GGI) which received support from over 140 countries [12] - China hosted international leaders to commemorate significant historical events, reinforcing its contributions to global stability and the post-war order [13] - The country announced its 2035 climate action contributions and established the International Organization for Mediation, showcasing its commitment to global peace and development [14]

Core Viewpoint - The article highlights the positive perceptions of China's healthcare system from foreign vloggers, showcasing its efficiency, accessibility, and affordability compared to Western systems [1][2][5][10]. Group 1: Foreign Perspectives on Chinese Healthcare - An American vlogger praised the efficiency of China's healthcare system, noting clear procedures and minimal waiting times [1][2]. - A British vlogger shared experiences in Shanghai, emphasizing the contrast between Chinese and Western healthcare systems, which sparked discussions on social media [3]. - An Italian vlogger also reported high efficiency in smaller Chinese cities, indicating a broader positive sentiment among foreign visitors [4]. Group 2: Improvements in Healthcare Accessibility - Personal accounts illustrate that China's healthcare system has become more balanced and accessible, benefiting ordinary citizens [5][15]. - Grassroots medical institutions accounted for over 50% of total outpatient visits during the 14th Five-Year Plan, highlighting local accessibility [15]. - Technological advancements and integrated medical alliances have improved service capacity and accessibility in rural areas [16][17][18]. Group 3: Healthcare Costs and Insurance - The American vlogger noted that he paid only $4 for registration in China, contrasting sharply with the $300 cost in the US [11]. - A comprehensive health check in China cost 253 yuan ($36), with results delivered within 24 hours, showcasing affordability and efficiency [12]. - The national basic medical insurance coverage rate remained stable at around 95% during the 14th Five-Year Plan, supporting the healthcare system's accessibility [24]. Group 4: Future Developments and Initiatives - The Recommendations for the 15th Five-Year Plan emphasize public wellbeing and the Healthy China Initiative as core priorities [7][25]. - Several provinces have begun to implement localized plans that align with the Healthy China strategy, indicating ongoing development in healthcare [25]. - The article concludes with a vlogger's initiative to create a service for overseas visitors to navigate China's healthcare system, reflecting a growing interest in its advancements [26].

Summary of Key Points from Conference Call Industry Overview - **Industry Focus**: The conference call primarily discusses the mining and commodities sector, with a specific emphasis on iron ore, base metals, coal, and battery raw materials in the context of China's economic indicators and demand trends. Core Insights and Arguments Mining Strategy - **China's Commodity Demand**: In November 2025, commodity demand indicators in China showed significant weakness, with retail sales underperforming expectations, marking the weakest result in three years. The downturn in the property sector has worsened, leading to potential downside risks for demand expectations and prices. Economic decision-makers may delay policy changes until the 15th Five-Year Plan is finalized in March 2026 [1][6]. Iron Ore - **Market Weakness**: The property sector's weakness has accelerated, with construction starts and sales down 21% and 9% year-over-year, respectively. Crude steel output in October decreased by 11% year-over-year. Iron ore port inventories increased by 4% month-over-month. Despite recent support for iron ore prices, factors such as the ramp-up of Simandou and steel production management in northern China may exert pressure on prices into early 2026 [2][6]. Base Metals - **Consumption Risks**: Retail sales growth was only 1.3% year-over-year, significantly below the previous 2.9% and consensus expectations. Weak demand for durable goods and ongoing property market issues are contributing to muted consumption prospects. Industrial production growth also slowed to 4.8% year-over-year. The fragile internal consumption environment presents significant macro risks for industrial metals, with potential for downside if economic trends continue [3][6]. Coal - **Demand Dynamics**: Coal production and imports rose by 6% month-over-month, driven by thermal demand rather than steel-making needs. However, flat coke production and declining daily steel output indicate subdued blast furnace activity, reflecting ongoing weakness in property and construction sectors. Increased coal supply without a corresponding rise in steel demand raises caution regarding the metallurgical coal outlook [4][6]. Battery Raw Materials - **EV Market Strength**: Electric vehicle (EV) output remained stable with a year-over-year increase of 17%. Demand for battery raw materials is expected to accelerate, particularly due to the strength in EVs and anticipated growth in battery energy storage systems (BESS) [5][6]. Additional Important Insights - **UBS View on Growth**: The data from November 2025 indicates a slowdown in growth, with the finalization of the 15th Five-Year Plan and potential stimulus being key factors to watch. Rising iron ore inventories and pressures on the steel sector pose risks to iron ore prices, while base metal prices are also vulnerable due to retail sales softness. The coal market outlook is uncertain, requiring stronger demand outside of China to support prices [6][8]. - **Economic Indicators**: Key economic indicators from China show a decline in manufacturing PMI and retail sales, with implications for various sectors, including steel and construction. The overall economic environment suggests a cautious outlook for commodity demand moving into 2026 [8][9]. This summary encapsulates the critical points discussed in the conference call, highlighting the challenges and potential opportunities within the mining and commodities sector in relation to China's economic landscape.

Summary of Key Points from the Conference Call Industry Overview - The report discusses the performance of the Chinese equity market, specifically the MXCN and CSI300 indices, which dropped by 5.5% and 3.8% respectively amid a global selloff in equities [1][1]. - The offshore Internet sector underperformed, with the HSTECH index declining by 7.2% [1][1]. - The report highlights the introduction of the GS 15th Five-Year Plan Portfolio, which includes 50 mid-cap companies positioned to benefit from policy tailwinds over the next five years [1][1]. Core Insights and Arguments - **Market Performance**: The report notes that 88% of all listed companies in China have reported earnings, with 9M/3Q25 earnings rising by 7% and 13% year-over-year [36][36]. - **Policy Developments**: There are indications that Chinese policymakers are considering a new property stimulus package, potentially including mortgage subsidies for first-time home buyers [1][1]. - **Fiscal Data**: On-budget fiscal revenue growth has slightly increased, while fiscal expenditure growth has significantly declined [1][1]. - **Investment Inflows**: Southbound investment saw inflows of US$5.0 billion this week, with year-to-date inflows totaling US$175 billion [1][4]. Earnings and Valuations - The forward price-to-earnings ratios for MXCN and CSI300 are reported at 12.3x and 13.9x respectively [9][9]. - Earnings growth estimates for 2025 and 2026 are projected at 3% and 15% for MXCN, and 15% and 14% for CSI300 [9][9]. - Financials and Materials sectors have seen the most upward revisions in earnings estimates [9][9]. Sector Performance - The report indicates that certain sectors such as Real Estate (3.9%) and Dividend Yield (3.7%) outperformed, while Information Technology (-2.7%) and Momentum (-3.8%) lagged [8][8]. - The analysis of past Five-Year Plans suggests that following Chinese policy could yield significant rewards in the equity market, with top-performing sectors historically including Autos, Telecom Services, and Materials [12][12]. Additional Insights - The report emphasizes the importance of the 15th Five-Year Plan, which focuses on modernization, security, and science/technology [10][10]. - The portfolio introduced is expected to outperform the benchmark, driven primarily by earnings growth and delivery [21][21]. - The report also highlights that the equity market has lagged nominal growth over the past decade, indicating potential for future recovery [14][14]. Conclusion - The overall sentiment in the report suggests cautious optimism for the Chinese equity market, driven by policy support and potential recovery in earnings growth. The introduction of the GS 15th Five-Year Plan Portfolio is positioned as a strategic move to capitalize on upcoming policy shifts and market opportunities [1][1][21][21].