China lowers 2026 growth target to 4.5-5%, first cut in three years amid mounting headwinds
The move signals a more cautious outlook as the world’s second-largest economy grapples with weak demand, property strains and trade pressures.
by Bong Xin Ying · CNA · JoinRead a summary of this article on FAST.
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BEIJING: China set its 2026 economic growth target at 4.5 to 5 per cent, marking the first downgrade since 2023, according to the government work report delivered by Premier Li Qiang at the opening session of the National People’s Congress (NPC) on Thursday (Mar 5).
The target was set at “around 5 per cent” for the past three years.
The move signals a more cautious outlook as the world’s second-largest economy grapples with deflationary pressures, a protracted property downturn and heightened trade tensions with the United States.
4.5 to 5 per cent is also the lowest growth target since 1991.
“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,” Li said.
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China’s economy grew 5 percent in 2025, one of the slowest rates in decades according to official data released in January, reaching more than 140 trillion yuan (around US$20.3 trillion) - as officials struggled to overcome persistently low consumer spending and a debt crisis in the country's property sector.
The GDP target was deliberate, Li said - also noting that the Chinese government had “considered the need to leave some room for structural adjustments, risk prevention, and reform in the opening year of this five-year plan period, so as to lay a solid foundation for delivering better performance in the coming years”.
Xu Tianchen, senior economist at the Economist Intelligence Unit in Beijing, told CNA that the growth target is “realistic and fully within expectations”.
“Beijing doesn't necessarily see high growth rates as a good thing, because it may incentivise local officials to exaggerate growth with white elephant projects and data manipulation.”
“It's a further shift from a 'number-first' mindset towards a 'quality-first' one,” he added.
This year carries added significance as the country embarks on its ambitious 15th Five-Year Plan, a blueprint that will set policy priorities and shape economic strategies through 2030.
“China's economy needs to grow at around 4.17 per cent per year - over the next 10 years - to meet the 2035 doubling target,” Xu said, adding that this year is “important for setting the pace”.
“Beijing will stay the course with Xi’s agenda of slower but more secure growth, focused on technological self-reliance and tighter political control,” Neil Thomas, a fellow on Chinese politics at the Asia Society Policy Institute's Center for China Analysis, previously told CNA.
Beyond GDP, the government is also aiming to create over 12 million new urban jobs - keeping its urban unemployment rate at around 5.5 per cent.
To support those goals, Beijing signalled a continuation of its expansionary fiscal stance.
The deficit-to-GDP ratio is set at 4 per cent, unchanged from 2025 - with general public budget expenditure projected to exceed 30 trillion yuan for the first time - an increase of about 1.27 trillion yuan from last year.
Domestic consumption is a central plank of that spending push.
Li said Beijing’s priority was to make “coordinated efforts to boost consumption and expand investment”.
The government earmarked 250 billion yuan in ultra-long special treasury bonds for consumer goods trade-in programmes and announced a new 100 billion yuan fiscal-financial coordination fund to stimulate domestic demand.
But there are some who remain cautious about the impact.
Wang Dan, China director at political risk consultancy Eurasia Group, said the trade-in programmes over the past two years “were not really boosting consumption” but were “shoring up basic growth in the consumer market”.
Consumption remains “one of the biggest challenges for China” in 2026, said Gary Ng, a senior economist at Natixis - also noting that many Chinese households were still reluctant to spend.
“People are also worried about the future (and) about pensions,” he told CNA.
“It's a very interlaced problem.”
Meanwhile, China kept its consumer price index (CPI) increase target at around 2 per cent, the same as last year.
Eurasia Group’s Wang said the 2 per cent CPI target is unlikely to be met due to low consumer confidence. “A very deflationary scene in China” will still persist, he added.
Lin Han-Shen, China director at The Asia Group advisory firm, warned that deflation was fundamentally a confidence problem.
“Nothing in the plan really addresses this concern so the market's takeaway will be 'more deflation on the horizon',” he said.
Ng from Natixis said the challenge of deflation extended beyond official targets to what households actually experience.
“The policy targets real GDP growth, but when nominal growth can come back is actually a very important question for businesses and households to really have confidence back,” Ng said.
“That will have a (real) impact on what people see in their bank accounts - wage growth, corporate profit growth and whether they can raise prices.”
Deflationary pressures have gripped China’s economy - underscoring challenges facing policymakers.
The producer price index fell 1.4 per cent in January from a year earlier, its 40th consecutive month of contraction, though the pace of decline has eased from the 2.6 per cent drop recorded for all of 2025.
Consumer inflation was flat in 2025 - well below the government’s 2 per cent target.
Price pressures showed little improvement at the start of this year. The consumer price index rose 0.2 per cent in January from a year earlier, slowing from 0.8 per cent in December.
Beijing aims to “steer general price levels back into positive territory and produce a reasonable, modest rebound in consumer prices to facilitate a virtuous cycle in the economy”, Li said.
The property sector, once accounting for roughly a quarter of China’s GDP, remains in a prolonged downturn.
Real estate investment fell 17.2 per cent in 2025, while commercial housing sales by floor area dropped 8.7 percent.
New housing starts are still far below peak levels, observers said, with excess inventory weighing on prices in many Chinese cities.
Xu from the EIU said the sector’s drag on growth may be easing.
“New housing starts in China are about just one quarter of the peak level - this means there is very limited room to decline further," he said.
Li pledged city-specific policies to “control the number of new real estate projects, reduce housing inventory and improve supply”.
He also said Beijing would encourage unsold housing stock to be purchased and converted mainly into government-subsidised housing.
He vowed to “better leverage the role of the white list to ensure timely delivery of housing projects and prevent debt default risks” - a direct reference to the unfinished homes crisis that has plagued the sector since the collapse of major developers.
Externally, trade tensions continue to cast a shadow.
US tariffs on Chinese goods average around 34 per cent, according to the Congressional Research Service - down from higher levels after the Supreme Court struck down levies imposed under emergency powers on Feb 20, but still elevated amid a fluid trade environment ahead of President Trump's planned visit to Beijing from Mar 31 to Apr 2.
Exporters have rerouted shipments to emerging markets, the European Union, Africa and Southeast Asia.
China’s goods trade surplus hit a record US$1.2 trillion in 2025.
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