BEIJING, CHINA - OCTOBER 15: A construction worker works at the construction site of a new office tower in the Central Business District on October 15, 2024, in Beijing, China. China's government this month announced several fiscal measures aimed at boosting economic growth and consumer spending in the world's second-largest economy. (Photo by Kevin Frayer/Getty Images)
[People News] The government work report presented by the Premier at the annual Two Sessions of the Communist Party of China (CPC) serves as a guiding document for the annual economic plan. The 2025 report concentrated on wrapping up the '14th Five-Year Plan', highlighting the need to stimulate consumption, investment, and transition towards high-quality development. In contrast, the 2026 report focuses on the launch of the '15th Five-Year Plan', acknowledging the external challenges posed by geopolitical risks and internal issues such as sluggish consumption, deflation, and rising unemployment risks. While it continues the 2025 theme of 'seeking progress while ensuring stability', the GDP growth target has been revised down to a range of 4.5%–5%.
When comparing the key points from the 2025 and 2026 government work reports, areas such as food production, urban unemployment rates, new job creation, inflation indices, consumer price increases, deficit rates, and local government special bond quotas show consistency between this year and last. However, there is a notable reduction in the intensity of fiscal stimulus, particularly in general public budget expenditures, special national bonds aimed at bolstering bank capital, and initiatives for replacing old consumer goods with new ones, as well as in monetary stimulus compared to the previous year.
This reduction in policy measures is not simply a pragmatic adjustment; it reflects deeper structural dilemmas at the policy level and a weakening of decision-making. It highlights the inherent vulnerabilities of the CPC's authoritarian extractive economic system in a high-debt, high-leverage environment and suggests that the momentum for economic growth is now facing a complex set of challenges, including market degradation, a loss of confidence, and ineffective policies.
The government work report for 2025 indicates that fiscal policy still shows signs of expansion. The general budget expenditure is projected to increase by 1.2 trillion yuan compared to 2024. The deficit rate for the general public budget is set at approximately 4%, with the total deficit reaching 5.66 trillion yuan. Additionally, 1.3 trillion yuan in ultra-long-term special government bonds will be issued, along with an extra 500 billion yuan in special government bonds aimed at bolstering the capital of large state-owned commercial banks. The quota for local government special bonds will rise by 500 billion yuan to 4.4 trillion yuan compared to 2024, primarily focusing on infrastructure, land reserves, and reducing inventory in the commercial housing sector. These measures were barely sufficient to support nominal GDP growth and the resilience of the export sector during that year.
The fiscal policy outlined in the 2026 government work report reveals a notable convergence. The general budget expenditure has only increased by 1.27 trillion yuan compared to 2025; the deficit rate remains at 4%, with the deficit slightly rising to 5.89 trillion yuan (after accounting for inflation, the actual purchasing power has not seen a significant improvement). The quota for local government special bonds remains unchanged at 4.4 trillion yuan, with the focus shifting towards 'major project construction, replacing hidden debts, and repaying owed amounts to enterprises.' Local debt totals hundreds of trillions of yuan, making the task of filling a gap of several trillion yuan seem trivial; the scale of ultra-long-term special government bonds also remains at 1.3 trillion yuan, the same as last year. The special government bonds intended to bolster the capital of large state-owned commercial banks have been cut from 500 billion yuan last year to 300 billion yuan, nearly halving; the ultra-long-term special government bonds for replacing old with new have decreased from 300 billion yuan to 250 billion yuan, a reduction of 50 billion yuan. The report's promises to stimulate consumption appear to be mere rhetoric; overall, the new government debt in 2026 has only increased by 1.07 trillion yuan compared to 2025, while the new government debt in 2025 rose by 2.9 trillion yuan compared to 2024, indicating a significant contraction in new government debt.
Regarding the so-called livelihood security, the Communist Party of China (CPC) continues to make grand promises. The per capita fiscal subsidy standard for residents' medical insurance in 2025 increased by 30 yuan compared to the previous year, while in 2026, this figure is only 24 yuan, which is 6 yuan less than last year. The minimum monthly standard for basic pensions for urban and rural residents has also only increased by 20 yuan, roughly equivalent to the price of a pack of cigarettes.
The quantitative contraction of fiscal policy reflects the squeezing and reduction of fiscal space, characterised by a sharp decline in local fiscal revenues, heavy debt burdens, ongoing negative growth in real estate investment, and a significant drop in land transfer income. Fiscal policy has shifted from the 'desperate struggle' of extensive liquidity in 2025 to a state of stagnation in 2026, so there should be no expectations for further stimulus or economic pull this year.
In terms of monetary policy, the 2026 report has upgraded its terminology from 'prudent' to 'moderately accommodative' and emphasises 'forward-looking, targeted, and coordinated' measures. It introduces new tools such as interest rate subsidies, credit guarantees, and risk compensation. However, the actual operational framework has not seen any fundamental breakthroughs. The ability to lower reserve requirements and interest rates is limited by banks' net interest margins, upward pressure on the exchange rate, and risks of capital outflow, making it impossible to inject liquidity on a large scale.
The contraction of fiscal and monetary policy in 2026 signifies that the Chinese economy has reached a point of stimulus immunity. The various stimulus measures of 2025 were ineffective, akin to drawing water with a bamboo basket, failing to rescue the economy. The root cause lies in the extractive economic model of the CCP's authoritarian regime, where Xi Jinping's expansion of state capacity has come at the expense of private sector capabilities. The so-called fiscal and monetary stimulus primarily benefits state-owned enterprises, neglects private enterprises, and stimulates consumption without enhancing income. This approach leads to a deadlock rather than any real recovery. It is not a soft landing but rather a chronic hard landing; the economic downturn is no longer a cyclical issue but a systemic inevitability.
Over the past 30 years, China’s economic growth and takeoff have largely depended on the real estate economy. However, over the past four or five years, the property sector has collapsed at a landslide-like speed. In 2025, real estate continued to decline in investment, sales, and housing prices. The sales area of new homes in 2025 fell to its lowest level in 15 years, dropping by about 14.1% year-on-year. Excess inventory has reached 80 million vacant or unsold housing units. S&P Global Ratings predicts that real estate sales in China will fall by 10–14% in 2026, far exceeding the previous expectation of 5–8%. In 2025, real estate investment plunged by 17.2%, dragging overall fixed-asset investment down by 3.8%. Since 2021, 85% of housing price gains have evaporated, causing a severe shrinkage in Chinese household wealth and simultaneously pulling consumer demand into a deep slump.
To address the problem of economic momentum in the “post–real estate” era and to cultivate technological advantages in competition with the United States, Xi Jinping has in recent years continuously emphasised an economic transformation centred on “new quality productive forces” and innovation mechanisms. He has also promoted the AI industry as another national mobilisation-style project. The Chinese Communist Party plans that by 2030, AI will cover 90% of economic sectors, including manufacturing (robots replacing assembly lines), services (AI customer service and unmanned delivery), and finance (algorithmic trading). Within ten years, the government-led AI industry is expected to reach a scale of 10 trillion yuan, with the goal of achieving global leadership in this field.
Xi Jinping also views the AI industry as a technological cure for the decline of China’s demographic dividend, yet foolishly ignores how AI may worsen the structural unemployment problems in the Chinese economy. During the Two Sessions, a news story about a restaurant spending 60,000 yuan to purchase two robotic chefs surged to the top of trending topics. The editor claimed that customers unanimously praised the dishes cooked by the robot chefs as delicious and no less impressive than those made by human chefs. However, netizens’ comments were overwhelmingly alarmed: “What are we supposed to do?” “The era of mass unemployment is coming!” “Delivery workers, couriers, and gig riders will all be taken over by robots!” “Autonomous driving will drain the ride-hailing sector, which used to be a reservoir for employment!”
This state-led model of developing the AI industry has many drawbacks. It will inevitably involve state investment, corporate speculation, intense internal competition, and a nationwide “Great Leap Forward” style expansion. At the same time, it will trigger structural reorganisation of the labour force. In the process of human–machine division of labour, coexistence, and competition, the risk of human unemployment will inevitably increase, leading to declining private-sector incomes and further weakening domestic demand. Eventually, AI production capacity will become severely excessive, prompting China to export robotic labour services abroad, which could in turn spark international trade disputes.
China’s economy under the CCP is in terrible shape and has largely stalled, desperately needing a new engine of growth. Can the AI industry fulfil Xi Jinping’s dream? Most likely, it will end up being yet another unfinished and failed mega-project.
(First published by People News) △
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