China’s 5-Year Plan Doubles Down on Tech. It Could Heat Up U.S. Tensions.

China continues to ramp up its focus on technology. (AFP / Getty Images)

Key Points

• Beijing’s new five-year plan prioritizes technology self-reliance and advanced manufacturing, potentially increasing tensions with the United States.
• The plan emphasizes “new quality productive forces” like AI and semiconductors, which have driven double-digit percentage gains in the Chinese stock market.
• China aims to maintain a minimum growth rate of 4.6% to double 2020’s per capita GDP by 2035, requiring increased household spending, an economist says.

Beijing’s new five-year plan doubles down on its push for technology self-reliance and advanced manufacturing, but its newly outlined policy priorities could further fuel its tensions with the U.S.

The communique from the Communist Party’s Central Committee’s Plenum—which is held once every five years—prioritized “significant” strides in economic, scientific and technological strength, national defense, and international influence for 2026 to 2030. The re-prioritization speaks to the rising rivalry and the ongoing trade and export control fight between the U.S. and China.

Economists have been expecting Beijing to take more drastic steps to rebalance its economy toward consumption and away from exports. The communique mentioned boosting domestic demand and enhancing people’s well-being, but that focus was secondary to the technology goals.

Details of the five-year plan will be fleshed out in coming months and approved at the National People’s Congress meeting in March. For now, it offers a blueprint for investors since it sets the path of economic and social development path for the country.

Companies engaged in “new quality productive forces”—Beijing’s phrase for the technology and initiatives that will bolster its self-reliance and help upgrade its industrial sector—should remain in favor, analysts said. It’s this part of the economy—artificial intelligence, semiconductor, and robotics firms—that has powered the Chinese stock market to double-digit percentage gains this year.

The preview suggests China’s economy is likely to continue in two very different tracks. One is strong growth in advanced manufacturing and the high-tech industry, while the other is lackluster domestic demand, continued deflationary pressures, and industrial excess capacity, Michael Hirson, head of China research at 22V said in a note to clients.

Missing from the communique was mention of “anti-involution”—Beijing’s recent effort to ease the intense competition and price cuts that have led to deflationary pressures and overcapacity, notes Hirson. That suggests Beijing sees the problems of excess capacity and overinvestment as temporary. There is little indication that policymakers are in a rush to rebalance the economy away from manufacturing and toward aggressive investment in the services sector.

“For advanced economies, concerns around a new phase of the ‘China Shock’ will mount.Beijing is intent on furthering China’s dominance in industry and becoming a technology powerhouse,” Hirson says. “Given a weak domestic economy, Chinese firms will continue to look overseas for key growth opportunities.”

The communique did not outline an actual gross domestic product growth target for 2026-2030, however. That will put the focus on a December meeting of the Central Economic Work Conference to gauge direction of fiscal and monetary policies.

But TS Lombard’s Rory Green says Beijing’s commitment to double 2020’s per capita GDP by 2035 will force China to try to maintain a minimum growth rate of 4.6% this year. That would likely require Beijing to find a way to get Chinese households to spend more.

Chinese households have traditionally been savers since they have few safety nets from the government. Job losses and the multi-year downturn in the property market have made them even less likely to spend of late.

Beijing has taken steps to rebuild consumer confidence, such as enhancing social welfare and trying to deal with its low birthrate with greater stimulus for families with multiple children—as well as more support for eldercare, health care and education. But the measures don’t amount to the transformative ones economists see as needed.

For households to feel better about spending, the struggling property market likely needs to bottom and show some sign of recovery, because it is the main store of household wealth. That said, some Chinese consumers are moving money into stocks of late.

The iShares MSCI exchange-traded fund is up 35% year to date. While valuations are getting stretched, Gavekal analyst Thomas Gatley says the stock market could rise further if the U.S. and China find another détente that keeps tariffs from spiraling into three-digit territory. The average tariff on China sits at about 55%.

Outside of the trade threats, Gatley says positive news on the technology and AI front, increased trading activity, and households allocating more to the market can support further gains, especially in China’s technology-related stocks.

The next event to watch for the U.S.-China relationship will come Friday when Treasury Secretary Scott Bessent and US Trade Representative Jamieson Greer meet Vice Premier He Lifeng to de-escalate recent tensions. President Donald Trump threatened 100% tariffs earlier this month after Beijing unveiled new restrictions on critical mineral exports. If the meeting can dial down the temperature, investors’ focus will shift to a meeting between Trump and Chinese leader Xi Jinping next Thursday in South Korea.

Write to Reshma Kapadia at reshma.kapadia@barrons.com