TwoSessions:ChinatoUpgradeTraditionalIndustries,FuelHardTechin2026

China is placing advanced manufacturing, artificial intelligence (AI) and other cutting-edge technologies at the center of its economic strategy as it launches a new five-year development plan aimed at boosting innovation and strengthening the real economy.

In the annual government work report delivered Thursday, Premier Li Qiang said China would continue to focus on high-quality growth in 2026, prioritizing technological innovation, industrial upgrading and the development of new quality productive forces.

The policy agenda coincides with the start of the country’s 15th Five-Year Plan from 2026 to 2030. A draft of the plan emphasized that innovation-led new quality productive forces are central to achieving high-quality development.

In a push for technological self-reliance, the plan calls for greater original innovation and breakthroughs in core technologies, alongside further expansion of the digital economy so that its core industries account for 12.5% of GDP.

The draft outline proposed 28 projects focused on strengthening the country's industrial foundations and competitiveness, developing new industries and sectors, achieving breakthroughs in frontier science and technology, and upgrading basic innovation capabilities. These account for roughly 26% of the 109 major projects slated for the next five years.

The term “new quality productive forces” was introduced by President Xi Jinping during an inspection tour of Heilongjiang province in September 2023. It refers to an innovation-driven model of economic growth that moves beyond traditional growth modes, characterized by high technology, efficiency and quality. The phrase made its debut in the government work report in 2024, prompting local governments to accelerate efforts to cultivate new growth drivers.

Traditional industries take priority

While previous policy agendas emphasized emerging industries first, the government work report places upgrading traditional industries at the top of the priority list this year.

Traditional sectors still account for roughly 80% of China’s manufacturing output and employment, according to Li Lecheng, Minister of Industry and Information Technology, in September.

To modernize those industries, the government plans to launch a new wave of large-scale technological upgrades, supported by 200 billion yuan ($29 billion) in ultra-long-term special treasury bonds earmarked for equipment renewal.

The policy push also includes expanding smart manufacturing, building new digital factories and supply chains, and providing cloud computing and digital transformation services to small and midsize enterprises.

Emerging pillar industries, future tech

Alongside upgrades to legacy sectors, Beijing is seeking to cultivate new growth drivers in industries such as semiconductors, aerospace, biomedicine and the low-altitude economy, which are now identified as “emerging pillar industries.”

The focus reflects growing investor enthusiasm for so-called “hard tech” industries in China, which have seen a surge of public listings over the past year.

The government is also stepping up support for industries still at an early stage of development. These include future energy technologies, quantum computing, embodied AI, brain-computer interfaces and 6G wireless networks. Authorities plan to establish new funding and risk-sharing mechanisms to support investment in these areas.

AI, tech self-reliance

AI is featured prominently in the plan. Beijing plans to accelerate commercial adoption of AI technologies across industries while expanding digital infrastructure such as computing power, data resources and network capacity.

China’s AI industry exceeded 900 billion yuan in market size in 2024, growing 24% from the previous year, according to data from the China Academy of Information and Communications Technology. The country now has more than 5,300 AI companies, including 71 unicorn startups valued at more than $1 billion.

Under the new plan to strengthen domestic innovation, China will increase national research and development spending by at least 7% annually, maintaining the same pace targeted under the previous five-year plan.

Key sectors identified for breakthroughs include semiconductors, high-end industrial machinery, advanced instruments, foundational software, advanced materials and biomanufacturing — areas widely seen as critical technological bottlenecks for China, according to Guo Lei, chief economist at GF Securities. The policy signals a shift from building industrial capacity to achieving greater technological independence, he said.

Contact editor Kelsey Cheng (kelseycheng@caixin.com)