The Resonance of New Quality of Production and Institutional Empowerment

As a key meeting marking the start of the “14th Five-Year Plan,” this year’s National People’s Congress and Chinese People’s Political Consultative Conference (Two Sessions) clarified the annual economic development goals and the focus of capital market reforms, charting a clear path for high-quality economic growth and steady development of the capital markets. Notably, this year’s Two Sessions signal a deeper institutional empowerment of the capital market, aiming to create a market ecosystem that efficiently serves new productive forces while effectively protecting investors.

The economic fundamentals are the core support for the capital market. The Two Sessions set a GDP growth target of 4.5%–5% by 2026, aligning with the current economic recovery pace. This reflects the potential for domestic demand recovery and provides stable expectations for the capital market. Achieving this growth will rely on dual drives from new productive forces and domestic demand, forming the core logic of economic operation and a solid foundation for capital market growth.

The Two Sessions emphasize new productive forces as the main theme of economic development. In the future, deep integration of technological and industrial innovation will accelerate the cultivation and expansion of new drivers of growth. Through technological breakthroughs and factor reconfiguration, productivity across all elements will be improved, promoting industries toward high-end, intelligent, and green transformation. At the capital market level, technological innovation and industrial upgrading will drive sustained profit elasticity in related sectors, forming a virtuous cycle of technology, industry, and capital, serving as the core valuation support for growth-oriented targets. The Two Sessions also prioritize expanding domestic demand as a strategic focus, activating endogenous economic momentum through coordinated supply and demand. On the demand side, efforts will focus on increasing residents’ income and consumption capacity to stabilize consumption expectations; on the supply side, quality upgrades and richer consumption scenarios will promote the shift from goods to services and new consumption models. This logical chain supports the recovery of consumption sectors, with related fields becoming key areas for steady performance realization. The dual drives create a positive cycle of supply upgrades and demand expansion, ensuring economic operation within a reasonable range and broadening profit sources for the capital market. The emergence of new productive forces opens long-term growth space, while domestic demand provides stable performance support. The combination of these factors will drive a restructuring of the valuation system in the capital market, helping high-quality enterprises realize value enhancement.

From the perspective of economic data transmission, as domestic demand recovers, CPI will gradually rise to a reasonable range, and PPI will gradually exit deflation, easing corporate profit pressures. Meanwhile, during economic recovery, corporate cash flows will continue to improve, with increased dividend payout capacity and buyback willingness, further enhancing investment value in the capital market. This will attract sustained capital inflows and resonate with the Two Sessions’ advocacy for a long-term investment ecosystem.

In terms of institutional empowerment, the reforms outlined at the Two Sessions focus on improving quality and efficiency, with clear signals and pragmatic pathways. The core is not short-term stimulus but ongoing institutional optimization to enhance market efficiency and resilience. The comprehensive reform of investment and financing is central, aiming to balance the functions of both ends, gradually shifting away from a past focus on financing over investment, and fostering positive cycles at both ends of the market. Based on this goal, reforms are structured around five major directions, all aimed at enhancing the capital market’s ability to serve the real economy.

First, improving mechanisms for long-term funds to enter the market. This is a key task in investment-side reform, aiming to unblock institutional barriers for long-term funds such as social security, insurance, and wealth management to enter the market, while optimizing long-term fund assessment mechanisms. The policy focus is on attracting and retaining these funds, creating a market ecosystem conducive to long-term investment, enabling long-term capital to truly serve value investing and stabilize the market.

Second, strengthening market ecosystem construction. Improving the quality of listed companies is fundamental. Key measures include facilitating the exit of poor-quality enterprises and strengthening investor protection mechanisms. From the source, these efforts aim to improve the supply quality of the capital market, making listed companies more investable and enhancing investors’ sense of gain, thereby fostering long-term endogenous market growth.

Third, regulating the financing behavior of listed companies. The reform direction shifts from scale expansion to quality improvement, guiding funds toward the real economy, especially in technological innovation. Increasing the proportion of direct and equity financing will promote a healthy cycle between the real economy and capital, making the capital market a true incubator for innovative capital.

Fourth, opening a green channel for tech-based enterprises. Under the policy guidance of serving new productive forces, qualified tech companies will receive normalized support in listing, financing, mergers, and acquisitions, ensuring capital flows precisely toward key core technologies and supporting the growth of strategic emerging industries.

Fifth, establishing a national-level M&A fund. This initiative aims to support industry consolidation and upgrading from the capital side by guiding funds to support listed companies’ mergers and acquisitions, resolving some industry inefficiencies, and promoting industrial structure optimization.

Additionally, investor protection systems are included in the 2026 government work report, marking a new stage in the rule of law in the market. A dual approach to governance is clearly outlined: maintaining a zero-tolerance stance against violations and illegal activities with strict enforcement at the front end; and accelerating the improvement of a multi-layered accountability system, including collective lawsuits, pre-emptive compensation, and civil liability, reducing investors’ rights protection costs and ensuring fair compensation for harmed investors. This closed-loop system will further strengthen market confidence from the root and lay a solid legal foundation for healthy market development.

The long-term positive outlook of the capital market fundamentally results from the coordinated effects of economic fundamentals, industry prosperity, and policy and institutional reforms. Economically, domestic demand recovery and industrial upgrading drive continuous improvement in corporate profits, forming the core support for the market; policy reforms centered on institutional empowerment optimize resource allocation, improve the long-term fund ecosystem, strengthen investor protection, and enhance market resilience; industry-wise, the cultivation of new productive forces and the support of national-level M&A funds provide sustained growth momentum. The clear long-term upward trend of the capital market will continue to play its resource allocation role, serve the high-quality development of the real economy, and offer investors long-term sustainable returns.

Author: Cao Xu, Director of Xiangcai Securities Research Institute