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Beijing’s unveiling of the 15th Five-Year Plan and 2026 targets at the Two Sessions provides a clear macro and policy roadmap for the coming year. A combination of a moderate growth target, targeted fiscal spending, and accommodative monetary policy is expected to translate into a steepening CGB curve.
First, policymakers are expected to set a 2026 GDP growth target of 4.5%–5%, slightly below the ~5% pace of previous years. Ongoing property market correction and its negative spillover onto consumption continue to cloud domestic demand. Anti-involution remains a key policy direction, with corporates curbing capex in manufacturing and related credit demand, reinforcing downward pressure on rates.
Second, the fiscal deficit is expected to remain steady at 4% of GDP, broadly in line with last year. Short-term consumption and equipment trade-in subsidies will be extended, funded by RMB250 bn in ultra-long special government bonds. Longer term, structural policies target employment, healthcare, child/eldercare program, alongside promotion of the silver economy and senior-oriented products. Meanwhile, RMB1.3 trn in ultra-long government bonds and RMB4.4 trn in local government bonds are earmarked to stabilize the property market and reduce housing inventory, currently at 31.4 months. These measures provide medium-term support for long-end yields while preventing disorderly market disruptions.
Technological self-reliance remains central, with AI, robotics, semiconductors, 6G, and renewable energy designated as priority growth drivers. Investment in data centers and grid transformation will require credit support, adding targeted demand for longer-dated funding and underpinning bond-market stability.
Finally, the government targets 2% consumer inflation, with weak price pressures justifying continued accommodative monetary policy. The PBOC is expected to maintain a supportive stance, including potential targeted rate cuts or bond-buying operations. This would compress short-end yields, while the long end is shaped by fiscal issuance and strategic debt management, contributing to a steepening of the yield curve. A preference for slower RMB appreciation indicates room for further easing. Ongoing liquidity injections are keeping short-end rates anchored. Taken together, these factors suggest the CGB curve should remain on track for steepening.
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