China's National People's Congress opened its annual session in Beijing on Wednesday with Premier Li Qiang's government work report setting a GDP growth target of "around 5%" for 2026 — identical to the 2025 target that the National Bureau of Statistics judged to have been met by a margin of approximately 0.1 percentage points. The CSI 300 index responded by falling 4.2% on the day, its largest single-session decline since August 2024, in a selloff that reflected not disagreement with the target itself but deep disappointment at the absence of the large-scale fiscal stimulus package that institutional investors, both domestic and foreign, had been positioning for since December.
The specific parameters that the market was watching for — and did not see — were threefold: an increase in the central government's official deficit ratio above the 3% of GDP ceiling that has been maintained since 2016, an expansion of the special purpose bond quota for local government investment beyond the 4.6 trillion renminbi announced in October, and explicit language committing to a property sector stabilisation fund of at least 1 trillion renminbi. None of these appeared in the work report in the form that had been anticipated. The deficit ratio was held at 3%. The special purpose bond quota was left unchanged. The property language was general and aspirational rather than numerically defined.
The sector composition of the decline was instructive. Property developers — already carrying debt loads that several have been unable to service since 2023 — fell 8.4% on average within the CSI 300, as the absence of a state-funded stabilisation vehicle removed the last credible mechanism through which the sector's excess inventory might be absorbed at prices above distressed levels. Infrastructure names declined 5.1%, reflecting the unchanged special purpose bond quota and its implication that local government investment in fixed assets would remain constrained by the same financing pressures that have weighed on them since mid-2025. Consumer discretionary, by contrast, fell only 2.3%, suggesting that the market does not read the NPC outcome as primarily a demand-side failure.
Southbound flows — the net purchase of A-shares by investors operating through the Hong Kong Stock Connect — turned negative for the first time since late January, with net outflows of 8.7 billion renminbi on Wednesday. This reversal matters because the southbound flow signal had been one of the more reliable leading indicators of institutional sentiment toward the mainland market over the past eighteen months. Six consecutive weeks of positive flows had been interpreted as evidence that international institutional positioning was shifting back toward Chinese equities in anticipation of policy support; the NPC's failure to deliver has unwound that positioning, at least temporarily.
Whether the selloff represents a durable reassessment or a short-term positioning flush depends on what emerges from the NPC's subsequent committees and from the People's Bank of China's April policy window. Several analysts note that the work report's language on "expanding domestic demand" is consistent with a reserve requirement ratio cut before mid-year, which would loosen credit conditions without requiring the fiscal commitments that the Ministry of Finance was evidently unwilling to make at this session. The market, for now, is pricing the lower-stimulus scenario. It will revise that view if the PBoC moves in April and the property data for February, due later this month, shows stabilisation rather than continued deterioration.