China has announced a 2026 GDP growth target of 4.5% to 5% during the Two Sessions meeting, marking the first time in three decades that a result below 5% is being officially considered.

After three consecutive years with a stated “around 5%” goal, the new target reflects that the economy is entering a slower, more mature phase of expansion.

Domestically, a prolonged property downturn and persistently high youth unemployment have weighed heavily on consumer confidence and spending. In response, the Chinese government is now looking to innovation and driving consumption to power the next stage of development.

The country’s new five-year plan ( 2026–2030 ) prioritizes investment in advanced technology, scientific research and high-tech industries, while also introducing measures to boost household spending.

New energy vehicles ( NEVs ) are one of China’s pillar industries. China sold 15.3 million units of passenger NEVs in 2025, with penetration reaching 51% of total vehicle sales.

NEVs are expected to continue gaining share from internal combustion engine cars thanks to government stimulus support, increasing consumer adoption, improving driving range and rising levels of vehicle intelligence, according to Morningstar, although growth is inevitably maturing.

Source: China Association of Automobile Manufacturers and Morningstar ( Data as of February 24 2026 )

However, profitability in the NEV sector is a challenge. With retail discounts staying high, the sector’s profitability, Morningstar notes in its latest report, will remain under some strain in the near term.

Vehicle margins for NEV makers are likely to be capped by intense price competition despite decent sales volumes. The cumulative after-tax profit margin for the auto sector fell to 4.1% in 2025 from 4.3% a year ago, and remains below the 5.3% to 5.6% range recorded in the 2022–23 period.

Looking further ahead, NEV manufacturers’ profitability will improve during the 2026–2028 period, according to Morningstar, as scale benefits filter through and battery costs remain low.

In 2026, passenger NEV demand will grow 10% to 15%, Morningstar forecasts, supported by the renewal of trade-in subsidies. However, the first quarter is expected to record a sales decline due to the late Lunar New Year and last year’s rush-buying triggered by concerns over subsidy expiration.

Beyond the auto sector, stabilizing the property market remains a national priority. City-specific measures are being deployed to manage housing supply and reduce excess inventory, according to Moody’s research, reflecting a targeted rather than sweeping approach to intervention.

In terms of stimulus, China plans a budget deficit of 4% ​GDP, similar to last year. It set unchanged special debt issuance quotas for the central government of 1.3 trillion yuan ( US$188.49 billion ) and for local governments at 4.4 ​trillion yuan. These funds will support infrastructure investment, absorb excess housing inventory and reduce hidden local government debt.