China’s NPC: Big policies, bigger market moves?

Key points:

• Growth and inflation: China is expected to maintain a 5% GDP growth target, while lowering its inflation target to around 2% to combat deflation risks. This signals a steady push for economic stability through targeted stimulus.
• Consumption boost: Fiscal policies, including consumer subsidies, pension increases, and tax incentives, could aim to revive sluggish domestic demand. Retail, e-commerce, and consumer discretionary sectors may see renewed momentum on such policy focus.
• AI innovation: China’s drive for tech self-sufficiency could lead to increased support for AI, semiconductors, and cloud computing. Major players like Alibaba, Tencent, Baidu, and SMIC could benefit from expanded policy backing.

China’s National People’s Congress (NPC) kicks off this week, and investors are watching closely for policy signals that could shape the market. While sluggish domestic demand, persistent deflation, and property sector challenges remain key concerns, rising trade tensions and geopolitical risks are also in focus.

That means macroeconomic targets, fiscal policy, and sector-specific initiatives will be under intense scrutiny. Here is a breakdown of what to expect, and which stocks might be in focus.

Growth target: Holding the line at 5%

Beijing is expected to set an “around 5%” GDP growth target for 2025, reaffirming its commitment to economic stability.

While this isn’t a surprise, it suggests continued government support for key industries. Infrastructure, consumer spending, and tech innovation are likely priorities.

Inflation target: Limiting deflation tolerance

China is expected to lower its inflation target from 3% to around 2%, emphasizing price stability.

For perspective, China’s inflation was just 0.2% in 2024, so reaching 2% in 2025 is more about restoring normal levels than controlling overheating as was the case is prior years with inflation target set at “no more than 3%”. The shift signals a steady focus on reviving consumption and eliminating deflation risks, reinforcing the need for stimulus.

Fiscal policy: Spending to support growth

Analysts widely anticipate Beijing will announce an official deficit ratio of 4% of GDP, up from the long-maintained threshold of around 3% – with notable exceptions in 2020 and 2023.

However, policymakers may also hold back large-scale stimulus in the near term to preserve flexibility in responding to external risks later in the year. That said, fiscal spending is likely to focus on:

1. Boosting consumption and domestic demand, potentially through subsidies, pension increases, and stimulus grants.
2. Stabilizing the struggling property sector, though structural reforms are needed for a long-term fix.
3. Accelerating private tech innovation, especially in AI and semiconductors.
4. Infrastructure investment, particularly if China sticks to its 5% growth target.

Sector-specific policies & stock focus

1. Consumer & e-commerce

Retail and consumer discretionary stocks could benefit from consumer stimulus measures aimed at reviving demand.

•  Alibaba (BABA), JD.com (JD), and Pinduoduo (PDD) may see positive sentiment if subsidies or tax breaks are introduced.

2. Technology & AI

China’s push for technological self-sufficiency could lead to further investment in semiconductors and AI development. We discussed the key players in the China tech space in this article.

• Semiconductor Stocks: Look at SMIC (0981.HK) and Hua Hong Semiconductor (1347.HK) for potential moves if chip industry support is expanded.
• AI & Cloud Computing: Tencent (0700.HK) and Baidu (BIDU) could be in focus given their AI investments.

3. Green energy & electric vehicles (EVs)

Continued investment in clean energy and EV adoption could spur gains in this sector.

• EV Makers: BYD (1211.HK) and XPeng (XPEV) could be in focus if there are further subsidies or policy support for new energy vehicles.
• Battery Tech: Contemporary Amperex Technology (300750.SZ) (CATL) is a key player in China’s battery supply chain.

4. Healthcare & aging population

Healthcare remains a long-term priority, with a growing elderly population driving demand for medical services.

• Pharma & Biotech: Wuxi Biologics (2269.HK) and CSPC Pharmaceutical (1093.HK) could benefit from policy tailwinds.

Risk of under-delivery

While the NPC will likely reinforce China’s policy direction, the real question is whether rhetoric turns into concrete action. Markets have already seen a strong year-to-date rally, which could lead to a correction if policy announcements fail to meet expectations.

Additionally, tariff risks are rising, and geopolitical uncertainties could weigh on sentiment. Investors should watch not just for what’s announced—but how quickly and effectively it’s implemented.