Lower target signals tolerance for slower expansion
China set its gross domestic product growth target for 2026 at 4.5% to 5%, its lowest stated goal on record going back to the early 1990s, as Beijing confronts persistent deflationary pressure and continued trade frictions with the United States. The target was published Thursday in the government work report as the National People’s Congress opened its annual session.
The new range marks a step down from the “around 5%” target used in the past three years and stands out as the most modest goal for the world’s second-largest economy, excluding 2020, when Beijing did not set a growth target during the pandemic. The shift comes after China reported 5% growth last year, while also entering a fourth year of deflation linked to a prolonged property downturn, weak consumer confidence and local government debt pressure.
Premier Li Qiang acknowledged the scale of the challenge in the work report, pointing to a “dramatically changing international trade and economic environment” and “deep-rooted structural problem” that have weighed on consumption and investment.
Tianchen Xu, a senior economist at the Economist Intelligence Unit, described the new target as realistic and framed it as a move away from a numbers-driven approach. Xu said Beijing may view very high growth as risky because it can encourage local officials to chase headline output through low-utility investment projects and data manipulation.
Deficit and inflation goals underscore demand weakness
Beijing kept its budget deficit target unchanged at “around 4%” of GDP, matching last year. The 4% deficit target first set in 2025 was described as the highest on record going back to 2010, with the previous high at 3.6% in 2020. By keeping that level, policymakers signaled continuity in fiscal stance even as they lowered the growth objective.
China also kept its consumer inflation goal at “around 2%,” a level first set in 2025 and described as the lowest in more than two decades. The inflation objective is treated more as a ceiling than a goal to be achieved. For all of 2025, price growth was flat, and inflation was 0.7% when excluding food and energy, according to the information provided.
Beijing set labor market goals alongside the macro targets. Policymakers aim to keep the urban unemployment rate, which was 5.2% last year, at around 5.5% in 2026 and to add 12 million new urban jobs.
Recent economic indicators cited in the report highlight the structural pressures Beijing is trying to address. Retail sales rose 3.6% in 2025. Factory-gate deflation deepened, with producer prices falling 2.6% from a year earlier. Fixed-asset investment declined 3.8% last year, described as the first annual drop in decades, while real estate investment fell 17.2%.
Fiscal and monetary tools lean on targeted support
The work report laid out a package of issuance and funding lines that signals a steady but relatively cautious policy mix consistent with the lower growth objective. China plans to issue 1.3 trillion yuan in ultra-long-term special treasury bonds in 2026, unchanged from last year. The government also allocated 250 billion yuan to support a consumer goods trade-in program and another 300 billion yuan for capital replenishment at large state-owned commercial banks.
At the local level, Beijing plans to issue 4.4 trillion yuan in local government special-purpose bonds, also unchanged from last year. The stated purpose is to fund major projects and relieve stress tied to local government debt.
Li said government spending will remain fairly large in scale and emphasized boosting consumption and raising living standards as priorities. Xu noted that the modest fiscal approach aligns with the more conservative growth target, indicating Beijing is balancing support with concern about financial stability and resource allocation.
On monetary policy, Beijing pledged to maintain an “appropriately accommodative” stance to support growth, including the possibility of interest rate cuts and reductions in the reserve requirement ratio. Li said China will develop improved structural monetary policy instruments, scale them up as needed, and refine their use, suggesting a continued preference for targeted tools rather than a broad shift to aggressive easing.
Trade tensions and geopolitics shape the policy backdrop
The annual meeting is taking place after China navigated nearly a year of intense trade conflict with the United States, which accelerated its effort to diversify exports away from America toward Europe and Southeast Asia. Li made a rare reference to the economic effects of a U.S. “tariff shock,” saying stimulus measures implemented last year helped cushion the impact.
Geopolitical risk is also in the background. The ongoing Middle East conflict has raised concerns as President Donald Trump plans to visit China later this month for talks with Xi Jinping on issues including tariffs, export controls and Taiwan, according to the information provided.
China has criticized the U.S.-Israeli strikes on Iran, called for an immediate ceasefire and urged a return to diplomacy. Chinese Foreign Minister Wang Yi held phone calls with Iranian and Israeli counterparts in recent days, positioning China as an active mediator in de-escalation efforts.
The parliamentary gathering known as the Two Sessions began Wednesday with the opening ceremony of the Chinese People’s Political Consultative Conference. The National People’s Congress session started Thursday and is scheduled to conclude on March 12, with leaders of economic and financial ministries expected to speak with journalists on Friday afternoon.
