Electrifying China’s future

Please find below our latest thoughts on China:

• While it’s tempting, ahead of Chinese New Year, to talk about Chinese markets galloping into the Year of the Horse, we’ll spare you the full zodiac treatment – for the most part!
• Upfront we should mention that China A markets are closed from Monday 16 February and reopen on Tuesday 24 February. The Hong Kong stock market is closed from 17-19 February.
• Quite quickly after the new year break, attention will turn to the National People’s Congress, China’s most important annual political event. This time around it also includes details of the next Five Year Plan.
• As part of this, China’s annual growth target is set to be announced on 5 March.¹
• So far, 29 of 31 China’s provincial governments have announced their 2026 GDP growth targets – of these, 19 have lowered their targets from last year. This includes the two largest provinces, Guangdong and Jiangsu.²
• As such, we expect the national GDP target this year to be in the range of 4.5-5.0% – either the same as last year’s target (of “around 5%”) or slightly lower. 

• Perhaps less important than the specific growth target is how the target will be achieved – which it almost always is. In the past 25 years, China has missed its GDP target only once. That was in 2022³ when preventing the spread of Covid was prioritised over economic growth.
• A question we often get asked is why the government has not taken more action to boost domestic demand and support the housing market. One answer is they haven’t needed to. Exports have been so strong in recent years that there was no need for significant additional stimulus to meet the growth target.
• Another angle is that allocating resources to the housing market would divert attention from what is seen as a much higher strategic priority – decoupling from Western supply chains in critical industries to protect long-term national security.
• On this note, one topic we are likely to hear a lot more about in the Five Year Plan and beyond is energy.
• China became a net importer of oil in the mid-1990s. Since then, energy self-reliance has been a persistent national priority. This has driven a diverse set of policies from strategic stockpiles to domestic exploration, new pipelines, and a massive push into renewables and electrification as Beijing seeks to reduce vulnerability to external pressures.
• It has become increasingly clear over the last year that China and the US are pursuing quite different energy priorities. While the US is betting big on oil (think Venezuela), China has ambitious plans to become an electricity superpower.
• A key priority is to make electricity the country’s top energy source. As part of this, the goal is for renewables to overtake fossil fuels as the dominant driver of electricity generation, aligned with the twin targets of peak carbon emissions by 2030 and making the economy carbon neutral by 2060.
• China already has by far the world’s largest electricity grid, with 25% more installed power capacity than the US and EU combined, and 35% more annual generation.⁴
• Its electrification rate – electricity as a share of final energy consumption – has risen to around 30%, above both the US and EU (~22%). The target is to push this figure to more than 50% by the middle of the century.⁵
• To achieve this, and to facilitate the shift to renewable energy, investment in the electricity transmission grid will need to be significantly ramped up to make better use of huge amounts of underutilised wind and solar generation.
• In summary, building an “electrostate” is seen both as a national security tool and also a source of economic competitive advantage, providing a pathway to technological leadership.
• As such, we view it as a critical long-term theme for investors in China. Electricity dominance is set to become a strategic foundation for future growth in key industries (AI, semiconductors, autonomous systems, robotics, battery technology, EVs). These areas have already become a much larger component of China’s stock markets, boosting the potential for long-term earnings growth and valuations. And finally… back to the Zodiac. In three of the last four Horse years, the Hang Seng Index has seen good gains.⁶ Hopefully, a propitious sign for the year ahead. We wish everyone a very happy, healthy and prosperous Year of the Horse!

¹ Source: Macquarie as at 6 February 2026
² Source: Nomura as at 4 February 2026
³ Source: Macrobond as at 31 December 2025
⁴ Source: Gavekal as at 13 January 2026
⁵ Source: Gavekal as at 13 January 2026
⁶ Source: CLSA as at 4 Feb 2026