China will lower its growth ambitions, setting its lowest targets in decades. The reason is as follows

Recognizing its domestic challenges and noting global uncertainties, China has set its lowest growth target in decades, while maintaining some stimulus measures to counter the potential for a sharp increase in external shocks.

The Chinese government on Thursday announced a 2026 GDP growth target of 4.5% to 5%, the least ambitious target since the early 1990s.

Danyang Shen, head of the team that drafted the target-setting report, told reporters on Thursday that the lower target range leaves policymakers “room to respond to the external environment, which has become more uncertain this year,” according to a Chinese translation by CNBC.

“There are many uncertain and difficult-to-predict factors that may turn out to be more numerous than expected,” he said, noting that “the latest global trends are visible to everyone.”

With only three months left until 2026, the US-Israel conflict with Iran, a major oil supplier to China, threatens China’s energy supplies, and Beijing faces increasing economic risks following the ouster of Venezuelan President Nicolas Maduro, another major oil supplier to China.

China has reportedly ordered its largest state-run oil refiner to halt exports of diesel and gasoline over concerns that the ongoing conflict in Iran could hinder easy access to energy. US military actions in the Middle East have also raised concerns about whether a meeting between US President Donald Trump and Chinese President Xi Jinping later this month will take place as scheduled.

The lower GDP target also recognizes the severity of persistent headwinds for domestic growth.

Chinese Premier Li Qiang made a rare acknowledgment of the impact of U.S. tariffs during a presentation on the country’s economic goals on Thursday. He also painted a grim picture of persistent local government financial difficulties that have caused businesses to struggle and, at times, even delays in paying salaries to employees.

Han Sheng Lin, Asia Group’s China director, said the report was “surprisingly candid” that weak consumption and investment were weighing heavily on growth momentum.

But it’s “ultimately a matter of confidence in the future,” Lin said. “There is nothing in the plan that actually addresses this concern, and the market impact will be ‘further deflation in the future.'” China’s consumer prices remained flat last year compared to its growth target of “about 2%.”

Although the Chinese government lowered its main GDP target range, other targets such as consumer inflation and government spending remained roughly in line with last year, when the economic growth target was around 5%.

“I think people already feel like economic growth is not going to be 5%,” said Liquan Ren, director of modern alpha at U.S.-based fund manager WisdomTree. Lowering the GDP target “maybe brings us closer to what people are feeling on the ground.”

“The general public is most concerned about the unemployment situation,” she says. China’s youth unemployment rate remains high, reaching 16.3% in January, compared to an average of 5.2% nationwide last year. For comparison, the youth unemployment rate in the United States was 9% in January.

The Chinese government on Thursday pledged to create 12 million jobs in urban areas, putting the urban unemployment rate at “about 5.5%.” He did not disclose specific plans.

Despite the property market’s continued downward spiral, the Chinese government’s plans aimed at halting the sector’s decline are similar to those detailed last year, and Thursday’s working report even rated those efforts as “effective.”

Meanwhile, policymakers continued to strive for technological self-sufficiency. The Chinese government said it will step up investment in scientific research and improve the environment that fosters innovation over the next five years.

So far, expansion into high-tech industries has failed to offset the drag on growth. New industries such as AI, robotics and electric vehicles added just 0.8 percentage points to gross domestic product (GDP) from 2023 to 2025, according to research firm Rhodium Group. Meanwhile, traditional sectors, including real estate, fell by 6 percentage points over the same period.

Larry Hu, Macquarie’s head of China economics, said export growth remained the “key variable”. “If exports remain strong, policymakers may continue to tolerate weak domestic consumption. Conversely, weak exports may prompt them to ramp up domestic stimulus to meet gross domestic product (GDP) targets.”

China plans to issue 1.3 trillion yuan ($188.5 billion) of super-long-term special bonds in 2026, the same as last year, and allocate 250 billion yuan to support consumer goods trade-in programs, down from 300 billion yuan last year.

“This signals a clear shift by the Chinese government from crisis-response stimulus to maintaining policy space from 2027 to 2030,” said Jeremy Stevens, a Beijing-based Asia economist at Standard Bank.

That said, even moderate growth targets would put the world’s second-largest economy on track to double its size from 2020 levels by 2035, according to the Chinese government’s long-term goals. Shen estimated that China’s economy would only need to grow at an average annual rate of 4.17% over the next 10 years to reach the 2035 goal.

Asia Group’s Lin said Chinese leaders would “rather beat a conservative number rather than miss a bold one.”