Breaking down China’s 15th 5-year plan and what it means for markets

Investing.com -- China’s newly proposed 15th Five-Year Plan offers long-term growth ambitions but few concrete policy commitments, according to market strategists.

Macroeconomic research firm BCA Research believes that it is “too early to go long any Chinese sector stocks purely on Beijing’s five-year blueprint,” and expects reform risks over the next 12 months to weigh on equities.

The proposal, released after the Fourth Plenum, outlines broad goals to sustain growth, raise household incomes and promote industrial upgrading from 2026 to 2030.

Yet, BCA strategists note that the previous five-year plans have consistently met their growth targets without delivering sustained stock outperformance.

“History reminds us that Chinese equity performance—both aggregate and sectoral—has been driven far more by business and profit cycles than by aspirational statements in official documents,” a team led by Jing Sima wrote.

BCA estimates China would need nominal GDP growth of 4.5–5% annually through 2035 to reach the World Bank’s “moderately developed” status, up from the 4.1% pace recorded so far this year.

However, the strategists warn that higher growth targets alone do not guarantee returns, particularly as Beijing’s industrial priorities could intensify deflationary pressures and geopolitical tensions.

The report highlights that China’s weak consumption share of GDP does not stem from low consumer spending, but from an investment sector that “has expanded too rapidly for too long.” Boosting consumption’s share of the economy without reviving investment could hurt job creation and income growth, ultimately weighing on household demand, it cautioned. 

The strategists also noted that Beijing’s push to “build a modernized industrial system” and mobilize national resources to achieve technological breakthroughs could “exacerbate deflationary pressures and heighten geopolitical tensions,” especially as China seeks to expand its manufacturing share globally.

They point out that each five-year plan typically starts with a “house cleaning” phase, when authorities tighten regulations to correct prior excesses.

Such cycles have historically caused Chinese equities to underperform global peers in the early years of each plan. Sectors that benefited from policy support—like property and internet firms during the last decade—often become the next targets of regulatory crackdowns.

BCA expects the premium liquor and electric vehicle sectors could be next in line. It says high-end liquor makers such as Kweichow Moutai may face scrutiny under renewed austerity measures, while EV manufacturers risk tighter oversight amid overcapacity, aggressive price wars, and rising leverage.

“Beijing’s drive to curb excesses and promote high-quality growth suggests that sectors marked by speculation, overcapacity, and moral hazard could face intensified regulatory scrutiny,” the report said.

In portfolio terms, BCA maintains an overweight in Chinese offshore equities but stays cautious about onshore A-shares and domestic bonds. It is closing its long consumer staples trade, largely dominated by liquor producers, and initiating a short on onshore auto sector stocks.

While Beijing’s policy focus remains on supply-side expansion, strategists argue this will likely sustain deflationary pressures—supporting lower yields and stronger returns in government bonds.

Overall, BCA said the 15th Five-Year Plan “signals continuity rather than a sharp policy pivot," strategists said. It reaffirms long-term goals on growth, domestic demand, and technological self-reliance while warning that pursuing all these objectives simultaneously could reignite old distortions or create new structural imbalances.