China: Pragmatic growth stance and FX stability – TD Securities

TD Securities’ Senior Macro Strategist Alex Loo says Chinese policymakers have set a modest 2026 GDP growth target of 4.5–5.0%, with TD forecasting 4.6%. The Budget keeps fiscal policy accommodative but avoids a repeat of 2025’s large impulse. TD expects the PBoC to tightly manage USD/CNY volatility during the The National People's Congress (NPC), limiting swings in the Chinese Yuan.

Pragmatic growth and currency management

"China unveiled its 2026 work targets, announcing a GDP growth range of "4.5-5.0", lower than previous years targets of "around 5%". Authorities are taking a pragmatic stance on growth as they ensure the Budget this year supports the strategic goals of the 15th Five-Year Plan."

"We forecast GDP at 4.6% in 2026, the lower end of the GDP target range albeit in line with Bloomberg consensus which is at 4.6%. Downside risk to our forecast is a further slowdown in investments and if US-China trade tensions escalate."

"We stressed in our preview that investors shouldn't be overly concerned with a lower GDP growth target as the growth rate is still consistent with the implicit growth path that is embedded in President Xi's aim to double China's economy by 2035 that was announced in 2020. This was emphasized today in Premier Li's speech."

"FX volatility is back, but we expect PBoC to ensure USDCNY volatility is kept to a minimum as the NPC (China's most important political event) is underway till March 12. We expect PBoC to keep a tight grip on the currency through its daily fixings, after it removed the FX forwards ratio requirement to push back against one-sided CNY bullish bets."

"Investors' reaction to today's Budget was fairly muted as most of the economic targets were modest, which was probably priced in given the extensive coverage from onshore media reports. Chinese equities rebounded after 2 days of losses amid the geopolitical conflict in the Middle East, which was more a reflection of a recovery in broader risk-sentiment."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)