China's Two Sessions: Key Takeaways on Stock Price Movements Before and After the Meetings

On Tuesday, China's political leadership is convening at the Great Hall of the People in Beijing for the year's most significant event, known as the "Two Sessions." These closed-door meetings are the annual plenary sessions of both the National People's Congress and the Chinese People's Political Consultative Conference, typically held simultaneously in March. The sessions generally last for about ten days.

● China sets its economic targets this year

The overall growth target typically serves as the most critical indicator for setting macroeconomic policy for the upcoming year.

Today's government work report indicates that the GDP growth target for 2025 is expected to be around 5%, with the deficit rate planned to be around 4%, an increase of 1 percentage point from the previous year.

The urban surveyed unemployment rate target is around 5.5%; the CPI target is about 2%; the energy consumption per unit of GDP is expected to decrease by about 3%.

Since it is the first time since 2004 that the CPI target has been set below 3%, this move could lead to concerns about deflation. However, the increase in the government deficit ratio better than expected led to a rise in Chinese assets in today's Hong Kong market.

This, combined with the ambitious growth target, demonstrates a commitment to utilizing policy support to address significant domestic and international challenges.

● Industrial policy remains key

Observers are keenly watching to see the measures that Beijing might implement to stimulate private sector growth and foster innovation, particularly in the face of potential increased U.S. restrictions. Last month, China's leadership strongly encouraged its entrepreneurs to intensify their efforts, highlighted by a high-profile meeting in Beijing with the country's leading tech executives. During this meeting, it was declared that it is "prime time" for private enterprises "to fully leverage their capabilities."

Following this assembly, China introduced initiatives to enhance market access for private companies and began discussions on a Private Economy Promotion Law. This law could be enacted within the coming months, or even sooner, and is viewed as a major policy shift after a prolonged, extensive regulation on the private sector.

● Historical market performance: Chinese stocks first decline then rebound

Historically, Chinese stock assets tend to decline during the "Two Sessions" period and are more likely to rise after the meetings. Specifically, the technology sector often underperforms the broader market during the sessions but outperforms it after the conclusion of the meetings. According to Bloomberg data, technology stocks on average decline by 2.1% during the Two Sessions and rise by an average of 2.4% in the week following the end of the meetings.

The seesaw effect with the stock market is that Chinese interest rates often initially decrease and then increase (meaning bonds first rise and then fall). This year, the convergence of China's "Two Sessions" with potential U.S. tariffs may strengthen this trend.

However, this does not mean that the market aligns with historical trends every year. In 2015, the surge in China's internet development, along with fiscal policies that exceeded expectations, led to a continued rise during the Two Sessions period.