China Just Signed the $2 Trillion Check

What happened

China's annual legislative meeting (the "Two Sessions") concluded last week. Nearly 3'000 delegates approved the 15th Five-Year Plan covering 2026 to 2030, setting a GDP growth target of 4.5–5%. That's the lowest in nearly 30 years outside the pandemic, but it's deliberate: Beijing is trading headline growth for structural quality and technology leadership. For the first time, the Government Work Report introduced the concept of "forging new forms of smart economy," elevating AI from a sector-level tool to a national economic transformation priority.

The sessions took place against the backdrop of the US-Israeli war on Iran entering its second week. Premier Li Qiang acknowledged this indirectly by referencing a "more complex external environment," and several analysts believe it prompted last-minute additions to the plan's self-reliance language.

Impact on our Investment Case

Every thesis pillar confirmed

In our October article, we argued that China's top-level policy meetings would mandate roughly $2tn in structural technology spending, and that the formal approval at the National People's Congress would be the confirmation catalyst. Here's what came out:

• $2 trillion mandate is confirmed. The central government's science and technology budget rises 10% and the 7% annual floor for research and development spending growth is maintained. Six emerging industries, including chips, the low-altitude economy, and intelligent robots, are targeted to roughly double in value to over 10tn yuan by 2030.
• Technology self-reliance is formalized as policy. The Government Work Report framed technological self-sufficiency in semiconductors, AI, and advanced materials explicitly as a matter of national security, not just economic ambition. As the South China Morning Post reported, Beijing is now preparing for extreme scenarios, including potential external shocks or disruptions to coastal regions.
• Infrastructure spending of >$1tn confirmed. The National Development and Reform Commission confirmed over 7tn yuan in infrastructure investment for 2026 across six major network systems, including AI computing, communications, and power grids. State grid investments alone were increased by 40%.

The Iran war as an accelerant

The US-Israel war on Iran (Operation Epic Fury, launched on 28 February) adds a dimension we did not anticipate when we launched the strategy. Three transmission channels matter for our thesis:

• Defense and technology overlap. Defense spending rises 6.9% to 1.94tn yuan, with emphasis on indigenous advanced weaponry and AI-enabled warfare capabilities. Military analysts have highlighted how explicit lessons are being drawn from the conflict, emphasizing intelligence superiority, the vulnerability of centralized air defense, and the role of AI-powered targeting. This directly accelerates demand for domestic semiconductors and AI systems, sectors at the core of our China Tech index.
• Building a resilient home front. The plan explicitly mandates developing backup capacity for key industries in China's interior regions, and requires that all major infrastructure meet national defense standards. At the same time, it prioritizes household income growth, welfare expansion (education, healthcare, and housing spending expected to exceed 12.4tn yuan in 2026), and consumption. The goal is to strengthen internal demand by putting more money in ordinary citizens' pockets through better medical care, pensions, and social programs, thus building economic depth that also functions as resilience against external shocks.
• Energy security. Half of China's crude oil still transits the Strait of Hormuz. China holds roughly 1.4bn barrels in strategic reserves (about 120 days of net imports), providing a near-term buffer. But the ongoing disruption reinforces the long-term pivot: the massive grid investment and renewables push in the new plan are no longer just climate policy: they are energy security imperatives.

One Nuance for the Valuation Argument

The lower growth target (4.5–5%) reflects Beijing's deliberate emphasis on structural quality over headline speed. This could temper short-term earnings beats even as the long-term thesis holds. Policy spending takes time to reach companies: procurement cycles run 6 to 18 months, and state enterprise modernization budgets allocated in 2026 may not show up in earnings until 2027. Investors should expect a lag between policy confirmation and earnings acceleration.

That said, the market may be underpricing this shift. Persistent macro pessimism on China, very low foreign ownership (less than half the 2015 peak), and geopolitical headline risk have created an environment where foreing investors are looking for confirmations before committing. But with policy commitments of this scale, waiting for confirmations to show in companies' earnings, may miss the train. We discussed this dynamic in detail in our December note.

Our Takeaway

Our China Technology tracker was built specifically to capture the kind of policy-driven spending now being formalized into law. Our proprietary China Tech index is structured around semiconductors, AI and software, advanced manufacturing, and medical technology: the exact sectors at the center of the new five-year plan.

We launched the strategy at $100 on February 4, 2025. It stands at $154 now. More importantly, the structural drivers behind that performance are now law, with specific budgets, timelines, and accountability mechanisms attached.

The structural case is not only beginning, it is being codified into China's policy architecture for the next five years.