Barclays: Can local leadership transitions boost investment? Barclays expects competition to shift toward industrial policy

How has infrastructure investment changed ahead of the leadership transitions?

The report says China’s infrastructure investment fell 6% year on year in 2026 through the period covered by the report, compared with average growth of 5% in 2023–2025.
Barclays believes that, in addition to tighter fiscal constraints and fewer eligible projects, uncertainty ahead of leadership transitions may also reduce local governments’ willingness to launch new investments. Large infrastructure projects have long approval, construction and payback cycles; officials nearing the end of their terms may bear debt and execution risks, while their successors receive the main benefits.
Local governments may therefore be more inclined to complete existing projects or pursue smaller targeted investments. New leadership teams may still generate investment momentum after taking office, but the bank believes traditional infrastructure is unlikely to be the main channel.

Barclays notes that the 2011–2012 leadership transitions coincided with strong infrastructure and credit expansion; those in 2016–2017 were constrained by deleveraging and tighter local financing, while those in 2021–2022 were affected by the pandemic, property weakness and tighter financing. Beyond officials’ willingness to promote growth, financing conditions and central government policy are more decisive in determining the strength of investment.
Two important sources of local government funding have shrunk markedly. The bank estimates that land-sale revenue fell from about 8% of GDP in 2020–2021 to about 2% in 2026, a decline of roughly 6 percentage points from the peak.
Meanwhile, debt resolution efforts have intensified since 2023, with tighter restrictions on new hidden debt and financing for local government financing vehicles. Barclays believes that generating significant fiscal impetus may require increased central government transfers, central government borrowing or explicit local government debt quotas; the central government’s willingness to provide funding will affect the scale of investment.

Barclays expects the policy focus to shift toward technological self-reliance, advanced manufacturing and macroeconomic stability, with local competition potentially moving from building infrastructure such as roads and airports to attracting strategic industries and developing technology clusters. The bank lists artificial intelligence and robotics, semiconductors, biopharmaceuticals and new energy among the areas concerned.
With local balance sheets constrained, the bank expects more funding to come from private and other non-government capital and market financing: local governments will use limited public resources to guide funding from banks, companies and capital markets, while the central government’s influence over the scale and allocation of additional fiscal resources may also increase.
This shift could strengthen manufacturing competitiveness and exports, but it could also lead to duplicative investment and excess capacity and affect global markets through exports. The report counts 17 biopharmaceutical industry clusters across 16 provinces and municipalities; China has also taken note of this risk, with the Fifteenth Five-Year Plan, for example, calling for more coordinated development of computing infrastructure.

The first important signal will be the growth and investment targets announced at the local People’s Congress and Political Consultative Conference sessions in early 2027: higher GDP and fixed-asset investment targets could indicate a more proactive push for growth after the leadership transitions, while broader or more flexible targets would suggest policy may be more cautious.
Barclays will also watch funding sources and project composition: an improvement in local financing conditions would help strengthen investment capacity; continued reliance mainly on central fiscal and policy financing would reflect persistent local constraints. A rebound in traditional infrastructure and stronger investment in strategic industries would also point to different investment models, respectively.