Economy
China unveils five-year plan to ‘dominate’ AI, tech race
China on Thursday set out a five-year roadmap to turbocharge scientific breakthroughs and embed AI across its industrial economic machine, framing technological dominance as a core national security goal in its sharpening rivalry with the U.S.
In its 15th strategic plan since adopting Soviet-style quinquennial policy cycles in the 1950s, Beijing has outlined a bet that technology – not consumption – will drive its next phase of development despite growing structural pressures.
The objectives reflect President Xi Jinping’s vision of developing “new productive forces” to escape the middle-income trap, counter the demographic downturn, and enhance self-sufficiency to insulate China from U.S. export controls.
At the opening of the annual parliament meeting, Premier Li Qiang praised China’s ability to withstand U.S. President Donald Trump’s tariff hikes, but said “multilateralism and free trade are under severe threat,” announcing 7% increases in the defense budget, as well as in research and development.
Li acknowledged an “acute” imbalance between strong supply and weak demand and risks from a worsening property sector crisis and high local government debt.
These challenges have pushed Beijing to set a slightly lower growth target of 4.5%-5% for 2026, down from last year’s 5%, which was met largely through a one-fifth surge in its trade surplus to a record $1.2 trillion.
As widely expected, the five-year plan also pledged a “notable” increase in household consumption, without specifying figures, dampening expectations for demand-side reforms.
Last year’s trade punches with the Trump administration, which briefly escalated to embargo-like conditions of triple-digit tariffs, showed the importance of its supply chain dominance as leverage.
China vowed to maintain its competitive edge in rare earths.
The U.S. and its allies are still years away from breaking their reliance on China for these materials vital to everything from AI chips to defense systems.
“China’s government remains laser-focused on spurring technological breakthroughs and high-tech investment,” said Fred Neumann, chief Asia economist at HSBC. “In part, this is motivated by competition with the United States for control over the technologies of the future.”
“Many international observers may be left disappointed, therefore, by slower progress in rebalancing the economy away from investment towards consumption.”
China invests 20 percentage points of GDP more than the global average, while its households spend roughly 20 points less – a state-controlled, debt-driven development model that analysts say creates industrial overcapacity and fuels trade tensions abroad and deflationary pressures at home.
“The rebalancing challenge that China faces, and that will take years to achieve, is implicitly acknowledged by a weaker growth target for the coming year,” Neumann added.
The five-year plan aims to raise the value-added of “core digital economy industries” to 12.5% of GDP and roll out new policies for an integrated national data market, AI adoption across the full supply chain, and an AI security system.
Ambitions span biomedicine, quantum tech, atomic-scale manufacturing, hyper-scale computing clusters, nuclear fusion, brain-computer interfaces and even commercializing AI-powered humanoid robots.
“Beijing is trying to manage a ‘controlled glide’ in growth while building a new economy based on technology rather than property,” said Andy Ji, Asian FX & rates analyst at ITC Markets.
“It is a high-stakes rebalancing where the government is betting the house on AI and advanced manufacturing.”
State-owned enterprises were enrolled to create demand for made-in-China semiconductors and drones.
The 141-page plan name-checks AI over 50 times, envisioning robots plugging labor shortages and factories operating with little human oversight. It builds on a breakout year for Chinese developers – led by DeepSeek – who rapidly closed the gap with U.S. leaders such as OpenAI and Gemini.
But the five-year plan also lists bigger ambitions in areas China already dominates: it accounts for 85% of the world’s electric vehicle charging stations, but still aims to double their number within three years.
Economists say a lower growth target allows Beijing to experiment with cutting overcapacity in low-value added industries, but cautioned that this did not mean a departure from its production-focused growth model.
The U.S. Supreme Court’s decision to strike down some of Trump’s tariffs and expectations that a meeting between the two countries’ presidents later in March could stabilize relations in the short-term bode well for such adjustments.
Dan Wang, China director at Eurasia Group, said Beijing appeared to take advantage of “the trade truce” to absorb the job market pressure created by any production curbs.
Stimulus-wise, China plans a budget deficit of 4.0% of GDP and has set special debt issuance quotas at 1.3 trillion yuan ($188.5 billion) for the central government and 4.4 trillion yuan for local authorities – all unchanged from last year.
China pledged to raise minimum monthly pensions by 20 yuan per person and basic medical insurance subsidies for rural, non-working people by 24 yuan – marginal, rather than structural, moves. It said it wants to increase education spending, subsidize childcare and reform public hospitals, acknowledging the demographic downturn.
Yuan Yuwei, fund manager at Trinity Synergy Investment, warned that China’s growth and policy aims for this year – prepared at the end of 2025 – do not take into account the U.S.-Israeli attacks in Iran.
“That’s very negative for China, which counts the Strait of Hormuz as a crucial trade route,” said Yuan.
Commercial shipping traffic through the Strait of Hormuz has dropped as much as 90% amid escalating conflicts in the Middle East, forcing global maritime trade to reroute around the Cape of Good Hope, located at the southern tip of the Cape Peninsula, about 50 kilometers (31 miles) south of Cape Town in South Africa.
After Tehran’s closure of the critical energy and oil waterway in response to joint U.S.-Israeli attacks on Iran, the U.K. Maritime Trade Operations (UKMTO) Center raised the security risk in the transport corridor to critical, prompting insurers to immediately cancel war coverage policies for vessels in the region.
Only four ships transited through the strait on March 3, marking a 90% drop versus the previous seven-day average, according to real-time tracking data from Windward.
The strait has historically handled an average of 138 vessels per day.
Oil tanker traffic also saw a similar 90% plunge compared to pre-attack levels, data from MarineTraffic showed.
Major firms suspend Gulf passages
Meanwhile, Cape of Good Hope transit saw 94 vessels on March 3, up 35% versus the route’s seven-day average.
Major shippers like Hapag-Lloyd, CMA CGM and Maersk suspended all Gulf transits and rerouted around the southern tip of Africa, which adds 10-20 days to delivery times and inflates transport costs.
Hapag- Lloyd told Anadolu Agency (AA) in a statement that the firm’s fleet has not transited through the Red Sea since December 2023, and the firm extended this decision in light of the current situation in the region and the related threats from Iranian-backed Yemeni Houthis.
French shipper CMA CGM announced it instructed all its ships in the Gulf and bound for the region to seek shelter, while passage through the Suez Canal has been suspended until further notice.
Maersk suspended voyages for vessels passing through the Suez Canal via the Bab el-Mandeb Strait, while rerouting all voyages from the Middle East and India to the Mediterranean and from the Middle East and India to the east coast of the U.S. around the Cape of Good Hope.
The Strait of Hormuz is a strategically vital waterway positioned at the mouth of the Persian Gulf. The transport corridor connects Middle Eastern oil and liquefied natural gas (LNG) production to global markets via the Arabian Sea and the Indian Ocean.
The waterway handles the transit of around 20 million barrels of oil and petroleum products per day while accounting for roughly one-third of all crude oil transported by sea.
China alone consumes 5.3 million barrels of crude oil transited through there, while India consumes 2 million barrels, Japan and South Korea 1.7 million barrels each, and other countries receive a combined 4.2 million barrels via the Strait of Hormuz, according to S&P Global data.
At the same time, Saudi Arabia is the largest exporter using the strait with 5.1 million barrels of crude oil shipped per day, followed by Iraq with 3.3 million barrels, the United Arab Emirates with 2.6 million, Iran with 1.7 million, Kuwait with 1 million, and other regional producers totaling 1 million barrels.
Meanwhile, the UAE and Saudi Arabia are the top exporters of 5 million barrels of refined petroleum products transiting the waterway daily, making up for 1.26 million and 1.04 million barrels per day, respectively.
Oil tankers began to divert to the Port of Yanbu on Saudi Arabia’s western coast, while loadings at the port surged to 2.44 million barrels per day so far in March, way above its six-month daily average of 650,000-940,000 barrels.
The Iraqi Oil Ministry halted production at the Rumania complex in Basra on Tuesday due to severe tanker constraints preventing vessels from entering the Gulf basin, pushing crude oil levels at domestic storage facilities to critical maximums.
Iraq’s Basra Port, which normally boasts a daily capacity of 3.5 million barrels, handled zero crude oil on Monday.
JPMorgan analysts say that major regional oil producers will be forced to shut down facilities if the disruption in the Strait of Hormuz persists for 21 days.
Tehran actively targeted regional oil and natural gas production plants by drone-striking Saudi Aramco facilities in the eastern Saudi city of Ras Tanura in retaliation for the U.S.-Israeli joint operation.
State-owned QatarEnergy reportedly halted production at its massive LNG facility in Ras Laffan after drone strikes on Monday, deepening global fears of a severe market tightening.
LNG competition between Asia, Europe may ramp up
Ross Wyeno, head of LNG short-term analysis at S&P Global, told AA that supply is insufficient to compensate for the massive imbalance caused by production halts in Qatar and the UAE.
Wyeno stated that the U.S. boasts the largest flexible LNG source in the world, so the freely loaded American LNG will go to Asia, where prices are the highest.
He said shipments from the U.S. will become more and more scarce if the situation does not improve, potentially impeding Europe’s efforts to fill its storage facilities and tighten the gas balance.
A recent development reflects this, as an LNG tanker originally bound for Europe reportedly changed course on Wednesday due to the price hike and was now headed for Asia on Thursday.
Türkiye has activated a special “sliding scale” system that adjusts the special consumption tax (ÖTV) on fuel products in line with changes in oil prices to prevent excessive price increases, according to a decision published in the country’s Official Gazette on Thursday.
According to the decision, in the case of a surge in refinery exit prices of fuel products, the ÖTV amount can be reduced by up to 75% of the increase, and in the case of decreases in prices, it will be increased by the same rate.
The decision comes amid concerns over rising global energy prices following the U.S.-Israeli war on Iran and its aerial response targeting key infrastructure across the Gulf nations, major producers of crude and natural gas. It also aims to limit the impact of rising oil prices on inflation and to reduce their effects on citizens.
The regulation will be based on the domestic refinery exit prices used as the basis for fuel dealer sales prices announced by the Energy Market Regulatory Authority (EPDK) as of March 2.
Increases in the ÖTV rates cannot exceed the ÖTV rate applied on March 2.
“To limit the impact of geopolitical developments on the economy, we have taken an important step by prioritizing disinflation in public finances. To mitigate the impact of the oil price shock, which we consider temporary, we are temporarily activating the sliding scale system and covering up to 75% of fuel price increases through taxes,” Treasury and Finance Minister Mehmet Şimşek said in a post on X.
“We will continue to support disinflation without compromising fiscal discipline,” he added.
Annual inflation rate in Türkiye ticked up slightly in February to 31.5% while monthly inflation cooled to 2.96%, compared to the higher-than-expected 4.84% increase in January, official data showed earlier this week.
Brent was up 3.2% at $84.01 per barrel early Thursday, while West Texas Intermediate rose 3.6% at $77.38 per barrel, extending gains over the past week.
Brazil’s parliament has ratified the free trade agreement between the European Union and the Mercosur states including Argentina, Brazil, Paraguay and Uruguay.
Senate President Davi Alcolumbre said on Wednesday lawmakers had acted in the interest of society after the treaty cleared its final parliamentary hurdle in the Senate. Uruguay and Argentina have already ratified the deal.
The agreement was signed earlier this year in Paraguay after more than 25 years of negotiations. It is expected to create a new free trade area covering more than 700 million people.
By reducing tariffs and other trade barriers, the pact aims to boost the exchange of goods and services between the two regions.
The European Commission has said it plans to apply the agreement provisionally, despite a pending review by the European Court of Justice.
Global economic resilience was being tested yet again by the latest war in the Middle East, Kristalina Georgieva, the head of the International Monetary Fund (IMF), warned Thursday.
“This conflict, if proven to be more prolonged, has obvious potential to affect global energy prices, market sentiment, growth and inflation, and place new demands on the shoulders of policymakers everywhere,” Georgieva said during a livestream of the “Asia in 2050” conference in Bangkok.
The U.S. and Israel began launching strikes against Iran on Saturday, killing its supreme leader and sparking a wave of retaliatory attacks across the Gulf.
The conflict in the resource-rich region has sent global oil prices soaring, and markets have been thrown into turmoil.
“We are in a world of more frequent, more unexpected shocks and we have been warning our membership for quite some time that uncertainty is now the new normal,” Georgieva said on Thursday.
“We are potentially in a prolonged period of flux.”
Energy security was “at stake” for most of Asia, she told the conference in Thailand’s capital, noting the markets have fluctuated “like a roller coaster over the last couple of days”.
“So the sooner we see the end of calamity, the better for the whole world.”
A draft law currently at the Turkish Parliament is expected to generate at least TL 4.2 billion (nearly $96 million) tax income from a levy on crypto assets, according to its impact analysis.
The law will generate more tax income from crypto assets but this amount cannot currently be calculated exactly as it will be applied for the first time, the analysis said.
Under the draft law proposed by the ruling Justice and Development Party (AK Party), on top of a 0.03% crypto asset transaction tax, a 10% withholding tax will be collected from profits made from crypto asset transactions made on approved platforms.
The analysis report said it was not possible to calculate possible budget revenues from the tax that will be imposed on crypto asset profits.
Separately, a 20% special consumption tax set to be applied to some precious stones as part of the draft law is expected to generate some TL 1.9 billion annual income to the government budget, according to the impact analysis.
The ongoing air war with Iran could cost the country’s economy over 9 billion shekels (about $2.93 billion) per week, the Finance Ministry said on Wednesday.
Under current “red” restrictions by Israel’s Home Front Command that limit traveling to work, order school closings, and mobilization of reserve forces, economic loss is estimated at 9.4 billion shekels a week, largely starting from next week, it said.
The ministry has asked the Home Front to move to “orange” – or limited activity that is less restrictive to workplaces than “red.” In this scenario, the loss to the economy would be 4.3 billion shekels a week.
Israel and the U.S. began bombing Iran on Saturday, triggering a wave of retaliatory strikes across Israel and the Middle East and disrupting energy exports from the Gulf.
U.S. and Israeli officials said the campaign could last weeks.
Schools in Israel are closed this week. Gatherings are banned, while workforce activities are prohibited except for essential services, with most employees working from home.
Hurt somewhat by the genocidal war on Gaza, Israel’s economy grew 3.1% in 2025. In the wake of a cease-fire in October, growth was projected at more than 5% in 2026.
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