Facing ‘grave and complex landscape,’ China sets lowest economic growth target in decades
Beijing/Hong Kong
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China set its lowest economic growth target in decades on Thursday, announcing it would aim for 4.5-5% expansion in 2026 as the world’s second-largest economy grapples with weak domestic demand and an uncertain global outlook.
The moderate projection follows three consecutive years of aiming for “around 5%” growth from 2023 to 2025, which the country achieved despite a slow recovery from stringent Covid-19 controls and US President Donald Trump’s tariff offensive last year. Still, China’s broader growth trajectory has flattened, weighed down by a prolonged property crisis, declined investment, tepid consumption and deflation.
Not since the early days of the Covid-19 outbreak has the government been less ambitious in its outlook. In 2020, with the economy nearly paralyzed by the coronavirus, officials passed on setting a numerical target. The 2026 target is the lowest since Beijing began announcing such figures in the early 1990s.
“Over the past year, the Chinese economy has proved remarkably resilient, forging ahead against headwinds,” Premier Li Qiang, the country’s No 2 official, said Thursday at the opening of the annual assembly of China’s rubber-stamp legislature, the National People’s Congress (NPC).
“Rarely in many years have we encountered such a grave and complex landscape, where external shocks and challenges were intertwined with domestic difficulties and tough policy choices,” he said, acknowledging that the domestic economy remained in the midst of “deep-seated structural problems.”
Over the week-long meeting ahead, nearly 2,900 delegates will approve China’s next “Five-Year Plan,” a policy blueprint aimed at guiding government priorities for the next few years to cement the country’s status as a global tech superpower.
The meeting comes weeks before Trump’s visit to Beijing, where Chinese leader Xi Jinping is set to host him for a three-day summit covering trade, technology and Taiwan, among other issues.
After launching its economic reforms in the late 1970s, China experienced nearly three decades of mostly double-digit growth, overtaking Japan in 2010 to become the world’s second-largest economy. But its momentum has slowed over the past decade, exacerbated by stringent pandemic controls, while regional rival India has surpassed it as the fastest-growing major economy.
As a US-led war in the Middle East rages, China’s top leaders at the gathering in Beijing are burnishing an image of resilience and stability. And, year into Trump’s second term, Xi has more reasons to be confident in a world increasingly shrouded in uncertainties.
In response to Trump’s tariff offensive, he has refused to back down, deploying similar levies on American goods or export controls on critical rare earth elements. Even with those levies, China nudged a record trade surplus last year by pivoting to other markets.
The US Supreme Court ruling that nullified Trump’s tariff power last month further validated China’s strategy of patience and resolve, as it brought down the effective US tariffs on Chinese goods to a level much closer to other countries.
These developments are expected to boost Xi’s standing as he greets the American president for the first time since 2017 in Beijing in a few weeks, as they seek to iron out trade differences and other issues following a truce reached in October.
External uncertainties aside, Xi faces mounting pressures at home including the slowing economy, which the government acknowledged in its decision to lower the growth target.
Although China met its “around 5%” goal last year, only half of its provinces achieved their individual targets.
Helen Chiao, chief Greater China economist at Bank of America, said the moderate goal underscored policymakers’ pragmatic approach, as they have signaled in recent years a transition from high-speed to high-quality growth.
“It’s also a reflection… that policymakers might be acknowledging the fact that the domestic demand weakness is probably going to be challenging to remove,” she said.
For the first time in three decades, investment in housing, manufacturing and infrastructure – major drivers of the country’s economic growth – reported a decline last year. Meanwhile, the property sector has entered its fifth year of crisis with sales and investment continuing to slump, dragging the economy and weighing down consumer confidence as well as spending.
On Thursday, Li highlighted the building of a robust domestic market as a policy priority for this year, pledging coordinated efforts to bolster consumption and investment.
For the first time, the Five-Year Plan also includes a goal of “realizing a noticeable increase in consumption as a share of GDP,” noted Louis Kuijs, S&P Global Ratings’ chief Asia-Pacific economist.
To boost spending, China will earmark 250 billion yuan ($36.2 billion) – down from 300 billion yuan last year – to finance a trade-in program for consumer goods that started in 2024.
But economists expressed disappointment over the government’s limited stimulus.
“Despite claiming to want to rebalance the economy toward consumption, concrete policy plans to do so remain timid,” said Julian Evans-Pritchard, head of China economics at Capital Economics, in a Thursday research post.
At the same time, while China vowed to continue a “more proactive fiscal policy” as it maintained its budget deficit at around 4% of gross domestic product, fiscal support appears to be in short supply.
On another front, it maintained its annual inflation target at around 2%, same as last year, though deflationary pressures remain a problem across various sectors, from electric vehicles to e-commerce. These industries have been plagued by overcapacity, leading to a cutthroat price competition that is driving prices downward.
Still, there are bright spots in the economy, particularly its high-tech sectors, from artificial intelligence and robotics to biomedicine, which Li touted as “at the forefront globally.”
As China continues its push for “self-reliance” in critical industries to insulate itself from US export restrictions, it committed to a 10% increase in annual budget for science and technology – in line with the growth over the past two years, according to a finance ministry report released on Thursday.
Beyond upgrading transitional industries, Beijing reaffirmed pledges to cultivate emerging and future sectors, including semiconductors, aerospace, biotechnology, quantum technology and embodied AI.
It would also promote AI‑related industries and the commercial application of the technology, while launching new data‑center infrastructure projects to boost computing capacity for its tech firms as they compete with US rivals.
These frontier industries are also among the key aspects of the new Five-Year Plan, which stressed “overcoming bottlenecks in critical core technologies” and “strengthening systematic planning aimed at the global cutting-edge science and technology,” according to a draft plan. Beijing is leaning heavily on innovation in these industries to achieve its goal of doubling the country’s per capita GDP from 2020 levels by 2035.
China’s decelerating economic growth has not significantly curbed its military spending. Its annual defense budget for 2026 rose 7% – slightly lower than the 7.2% annual increase in the last three years, according to the finance ministry report.
Beijing has not shied away from its ambition to become the preeminent power in Asia – and absorb Taiwan, a self-governed democracy that the Communist Party claims as its territory despite having never controlled it. Rising defense outlays have funded the expansion of fighter jets, aircraft carriers, drones and submarines amid Xi’s push to modernize the People’s Liberation Army (PLA).
Li in his Thursday address notably vowed to “resolutely fight against ‘Taiwan independence separatist forces,’” sharpening his tone from the last two years, when he pledged to “resolutely oppose” them. He did not elaborate on how Beijing intends to do so.
Ying-yu Lin, a PLA expert at Tamkang University in Taipei, said the consistently rising defense budget shows that China’s military needs have not declined because of changes like economic slowdown.
“For one, it has new equipment and new research and development programs coming online,” he said. “For another, the PLA is taking on more missions, and the frequency of exercises has increased: naval vessels are deploying more often, aircraft sorties have risen… All of these activities carry additional costs.”
In recent years, the Chinese military has ramped up activities in the Western Pacific, from violent clashes with the Philippines in the South China Sea, to large-scale blockade-simulating exercises around Taiwan and increased patrols near disputed islands controlled by Japan.
