february 2026: wary of Epic Fury

tanker Skylight struck off coast of Oman: China’s oil supply at risk

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Warm welcome all…

Despite energy risks and global turbulence, this week’s Two Sessions will be a predictable anchor. Premier Li Qiang will, as expected, unveil 2026 growth targets, around 4.5-5%; the Government Work Report and 15th 5-year plan will underscore Beijing’s drive to become a global technological superpower.

Beijing has condemned the strikes that killed Khamenei, demanded de-escalation, and positioned itself as a voice for peace and sovereignty. Nonetheless, it is keeping channels wide open; US and PRC trade envoys are set to meet mid-March in Paris, teeing up Trump’s March 31–April 2 Beijing visit for face-to-face talks with Xi on extending the trade truce, tariffs, and sensitive issues including Taiwan.

happy reading!

Philippa

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geopol: energy encirclement

PRC analysts read Epic Fury (史诗怒火) less as an Iran story than as ‘energy encirclement’. It cuts off cheap Iranian oil while normalising leadership-targeting warfare, weakening BRI infrastructure, and reducing the need for sustained American naval and air assets in the Middle East. Together with the Venezuela precedent, it is seen as a warning about China’s own leadership vulnerability.

The Ministry of Foreign Affairs frames the operation as a breach of sovereign norms. It criticises both leadership strikes and ‘negotiation traps,’ while suggesting that Washington is reviving ideas from a 2009 Brookings plan for regime change—it cannot discount this applying to China.

China National Radio notes that this Trump attack differs from past US Middle East strikes in its explicit leadership-targeting, and regime-change rhetoric, describing it as a campaign for ‘systemic paralysis’ rather than mere punishment, though limited by bipartisan opposition under the War Powers Act.

Before everything changed, Xi Jinping had spoken by phone with Trump on 4 February and, the same day, held a virtual meeting with Vladimir Putin. The exchanges followed a flurry of foreign leaders visiting Beijing throughout January to stabilise ties.

The PRC and Russia stand ‘shoulder-to-shoulder’ on major international issues, while the PRC and the US have reached equal status, leaving Washington unable to negotiate with Beijing from a position of strength, noted Gao Zhikai 高志凯 Centre for China and Globalisation.

The PRC delegation had a packed schedule at the 62nd Munich Security Conference. Wang Yi 王毅 met counterparts from the US, UK, France, Germany, Ukraine, Austria, Serbia, and Argentina, and held the first trilateral with Germany and France. Fu Ying noted the PRC’s rising influence, with expanded delegation and session topics. Europeans seek China’s views but see Beijing as both a partner and a rival—Europe’s independent China policy remains unclear. Hu Chunchun 胡春春 Shanghai International Studies University, criticised the Munich Security Report’s weak framework and case studies.

macro: steady ahead of Two Sessions

In February, Beijing kept its overall economic approach cautious. Growth showed signs of steadying, but demand remained soft. As the March ‘Two Sessions’ meetings drew closer, central and local messages aligned.

Just ahead of the Lunar New Year, Xi Jinping released economic guidance that again stressed his core priorities of boosting domestic demand and managing financial risk. Most provinces set their 2026 growth targets between 4.5 and 5 percent. Together, these signals suggested that Beijing is aiming to manage expectations for a steady rather than rapid economic recovery.

Regulators are taking a more cautious approach, too. Easing up on real estate’s strict ‘three red lines’ reporting rules shows a pivot from broad debt reduction to focused action on selling off excess inventory and managing risks project by project. The central bank also held loan prime rates steady for a ninth month straight, while stressing ongoing liquidity support and even-handed credit policies.

Tax authorities released guidelines to ensure the orderly roll out the new VAT Law. The rules set clear standards for putting the Law into practice. The levy is standardised at a simple 3 percent for most industries, with a 5 percent for legacy projects.

Compliance was reinforced, with better guidance on deducting VAT on inputs and stricter deadlines for export rebates. Overall, the goal is to render the VAT system more uniform, reduce local discretion, and tighten revenue collection as property-sector income dries up.

On the currency front, the central bank removed a 20 percent foreign exchange risk reserve on forward purchases as the RMB approached multi-year highs. Markets viewed the move as easing appreciation pressure, while officials described it as a technical adjustment to maintain orderly exchange rate fluctuations. At the same time, rules on cross-border RMB interbank financing were consolidated under a capital-linked framework, supporting offshore liquidity while keeping capital flows under macro-prudential management. Together, these steps signal that Beijing is prepared to smooth exchange rate volatility and expand RMB use abroad, but without loosening overall capital controls.

trade: moves to boost ODI and imports

A new ‘national overseas services platform’ for PRC firms launched in February. The one-stop site combines legal, tax, financial and trade services from multiple agencies, connects dozens of regional and industry sub‑platforms, and is more user-friendly.

PRC outbound investment has expanded and become more complex, bringing high-end sectors and entire industrial clusters abroad, says Liu Xiaochun 刘晓春 Shanghai New Financial Research Institute.

These latest move responds to this shift, as PRC firms build more dispersed, enduring overseas operations and now need more extensive support abroad than their own capacity and experience allow, explains Yu Xinding 余心玎 University of International Business and Economics.

Swift re-imposition of tariffs following the Supreme Court ruling that voided Trump’s ‘emergency’ PRC tariffs signals policy continuity: tariffs remain Washington’s core tool, says Zhang Monan 张茉楠 China Centre for International Economic Exchanges. Trade uncertainty persists; she predicts prolonged legal battles and fiscal strain for the US.

As friction with Japan mounts, Beijing imposed export controls on dual‑use items for 20 Japanese firms linked to the military and added 20 more firms to a watch list.

PRC countervailing duties on EU dairy were cut in the final ruling to 7.4–11.7 percent, down from 21.9–42.7 percent set in the December 2025 preliminary ruling. For the second time in two months, Beijing has lowered tariffs on EU ag goods after reports of progress on Brussels ’ EV duties on the PRC.

After making headway in trade talks with Ottawa, Beijing announced cutting canola tariffs and suspending some retaliatory duties on Canadian oil cakes, peas, lobsters and crab imposed under its ‘anti-discrimination’ probe.

Beijing continued ‘opening‑up’ in February, cutting tariffs and duties on consumer goods for residents of Hainan to an annual cap of C¥10,000. Goods must come from a ‘positive’ list covering some 200 import goods such as baby products, beef, toothpaste, fish, pens, kitchen appliances and fruit.

Wary of smuggling and other risks, Beijing continues to liberalise Hainan in small, careful steps. This phase goes further than earlier ones, easing value‑added and consumption taxes and edging into internal tax reform.

Building on a State Council opinion from August 2024, Beijing has released a new Catalogue of Encouraged Imported Services, a first update since 2019. The revision focuses on fields linked to ‘new quality productive forces’, the green transition and higher living standards.

A major new section on medical and health services shows that this is now a priority. While inclusion brings no automatic benefits, some listed services may qualify for interest‑subsidy support.

Import tax incentives were announced for goods, including

• sci-tech innovation and education

• energy and resources exploration

• seeds and breeding sources

• fire rescue equipment

• cross-border e-commerce exports returned goods

energy: infinity and beyond

‘Implementation Opinions’ on a national power market deliver a roadmap through to 2030 and beyond. Priorities include strengthening capacity for flexible power sources for regulating the system and making it easier for new entrants (e.g., virtual power plants, microgrids) to enter the market.

A unified national market can address pressure from rapid growth of renewables, according to Yang Kun 杨昆, China Electricity Council. The market also helps maintain reasonable prices, ensure safe and stable power supply and stabilise energy costs, all vital for boosting consumption, he adds.

Elsewhere, Chai Qimin 柴麒敏 Beijing’s Climate envoy, has penned an op-ed on the emerging space race for zero-carbon energy solutions. Space-based solar and nuclear power stations are the two main development pathways, with the potential to transmit a near limitless amount of renewable energy back to Earth, or power deeper space travel.

ag: quality grain, smarter farms, tighter rules

This year’s No. 1 Central Document keeps the grain floor firm but shifts the task from more to better quality grain. It backs ‘fit for market’ supply, so quality grain can return a premium, not get lumped as a bulk commodity.

Grain supply for food remains ample, but demand for feed and processing grain keeps rising. The No 1 Document urges growers to reconsider what they plant and how to lift grain quality.

The document also notes ‘new quality productive forces’ in farming. It backs AI tools, drones, and other smart tech, and pushes for wider pilots to extend land contracts by another 30 years as the second round of contracts expires. Extending contracts will keep farm rights steady, allowing output and incomes to rise.

On food, Beijing is tightening rules amid thin trust. A first draft of a national standard for ready meals sets out a clear scope. It excludes staples, fresh-cut veg, ready-to-eat food and central-kitchen meals. It bans preservatives, caps shelf life at 12 months, and points firms towards less oil, salt and sugar. The goal is to steer a fast-growing sector towards better quality and labels that explain safety.

scitech: R&D for industry

Xi Jinping began his first domestic inspection tour of 2026 with a visit to Beijing Yizhuang National Innovation Park for Applying Information Technology on 9 February 2026. This reveals Beijing’s changing approach to promoting tech innovation—from ‘research->industry’ to ‘industry->research’. Markets now define needs first; technology solves problems second.

The PRC’s National Integrated Circuit Fund (the Big Fund) is systematically divesting semiconductor holdings in 2026, shifting from state-led support to market-driven survival. The decade-long era of subsidies is ending, and companies are expected to compete on their own merits.

Beijing has issued two documents that, for the first time, set a clear regulatory framework for RWA (Real-World Assets) and address stablecoins. Without approval, RMB-pegged stablecoins are banned, while other stablecoins face ‘dynamic assessment’ rather than an outright ban.

On RWA, the essence is: strict domestic ban, strict offshore regulation. RWAs are treated as financial products, not new technology, and fall under traditional authorities such as the PBOC, CSRC, and SAFE.

environment: power play

Beijing is seeking a greater role in shaping the future of global shipping. This month, Shanghai released its 15th 5-year plan to build a world-class green shipping hub, complete with greater application of green methanol, a fuel bunkering and trading system, sustainable aviation fuels and green shipping corridors.

The PRC is lobbying to host the permanent secretariat of the International Maritime Organisation in Xiamen. It’s hoping for a significant soft-power gain, strengthening its influence over global maritime rule-making and standards setting.

On the home front, central agencies published lists of green industrial parks and factories built in 2025. Alongside zero-carbon parks and eco-industrial parks, these zones are set to become a key testing ground for industrial decarbonisation. Meanwhile, updated air quality standards tighten limits on major pollutants such as PM2.5, with a transitional phase in effect from now until 2030, when final concentration limits take effect.

governance: HK announces inaugural 5-year plan

Hong Kong’s inaugural 5-year plan announced by John Lee 李家超 Chief Executive, marks a decisive shift from the city’s traditional ‘laissez-faire’ governance towards a more dirigiste model, mirroring the central government’s role as proactive planner, regulator and investor. Hong Kong is effectively being incorporated into the broader state framework.

Ren Long 任龙 PLA National Defence University Political College, stated ‘remaining corruption has not been thoroughly eliminated’. In the PLA Liberation Army Daily. Political rectification, he adds, is urgently needed to eradicate the soil in which corruption breeds. Expect more heads to roll in the PLA.

social policy: health tech and vocational workforce

Beijing is compiling a catalogue of healthcare bottlenecks and inviting companies, universities, hospitals, and insurers to propose tech-driven solutions. It will share healthcare data with partners, spurring innovation through competitions to identify top performers.

In talent development, the PRC’s top agriculture policy document calls for reforming agricultural universities to cultivate demand-driven expertise and institutionalise the ‘science and technology courtyards’ model, embedding graduate students in farming communities to forge direct research-to-practice links.

A new vocational education reform targets advanced manufacturing, AI, green tech, and high-end equipment training. It merges school and enterprise expertise, letting industry masters convert frontline skills into curricula, noted Liu Youmei 刘友梅 Chinese Academy of Engineering.