China on Thursday set a 2026 GDP growth target of 4.5% to 5%, as the government grapples with persistent deflationary pressures and trade tensions with the United States. This is the lowest goal in history dating back to the early 1990s.
The target, set out in a government work report released on Thursday, is a downward revision from the “about 5%” set over the past three years and is the world’s second-largest economy’s most modest target on record, apart from 2020, when the Chinese government did not set a growth target due to the pandemic.
The Chinese government also kept its fiscal deficit target unchanged from last year’s “about 4% of gross domestic product” as the country’s top legislative body, the National People’s Congress, holds its annual meeting this week.
The 4% budget deficit target originally set for 2025 was the highest ever dating back to 2010, according to data accessed via Wind Information. The previous high was 3.6% in 2020.
Chinese policymakers have kept their annual consumer inflation target at “around 2%.” First set in 2025, this is the lowest level in more than 20 years and signals a tacit admission by the Chinese government that domestic demand is weak.
Inflation targeting acts as a ceiling rather than a target to be achieved. As consumer confidence remained weak, inflation remained flat through 2025, at 0.7% excluding food and energy prices.
In an action report, Chinese Premier Li Qiang acknowledged a number of troubling problems facing the economy, including a “dramatically changing international trade and economic environment” and “deep-seated structural problems” weighing on consumption and investment growth.
“The growth target is quite realistic. It’s a further shift from a ‘numbers first’ mindset to a ‘quality first’ mindset,” said Tiancheng Xu, senior economist at the Economist Intelligence Unit.
“The Beijing government does not necessarily see high growth rates as a good thing, because it can encourage local officials to exaggerate growth through white elephant projects (expensive investments with little economic impact) or data manipulation,” Xu said.
The Chinese government also aims to keep the urban unemployment rate at around 5.5% this year, from 5.2% last year, and create 12 million new jobs in urban areas.
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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 has earmarked 250 billion yuan to support consumer goods trade-in programs and 300 billion yuan to replenish the capital of major state-owned commercial banks.
The government also plans to issue 4.4 trillion yuan in local government special purpose bonds, also the same as last year, to finance major projects and alleviate local government debt stress, according to the work report.
“Government spending this year will remain substantial,” Li said in an activity report, noting that expanding consumption and improving living standards are priorities.
Xu noted that the relatively modest fiscal stimulus is also consistent with more conservative growth targets.
The Chinese government has pledged to continue implementing “appropriately accommodative” monetary policy to boost growth, including potential interest rate cuts and lower reserve requirements.
“We will develop new and better structural monetary policy instruments, scale them up as needed, and refine their use,” Li said.
The country’s annual parliamentary session, known as the “Second Session,” began on Wednesday with the opening ceremony of the Chinese People’s Political Consultative Conference, the country’s top policy advisory body.
The National People’s Congress will begin its meeting on Thursday and conclude its annual general meeting on March 12. The head of the Ministry of Economy and Finance is scheduled to meet with reporters on Friday afternoon.
China’s economy expanded by 5% last year, but has entered its fourth year of deflation due to a real estate recession, weak consumer confidence and local government debt stress. Retail sales in 2025 will increase by 3.6%, and factory gate deflation will become more severe, decreasing by 2.6% from the previous year.
Fixed asset investment fell by 3.8% last year, the first annual decline in decades. The downturn in real estate became even more severe, with investment in the real estate sector plummeting 17.2%.
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trade and geopolitics
This year’s congress comes after the world’s second-largest economy weathered nearly a year of bitter trade war with the United States and accelerated the diversification of U.S. exports to Europe and Southeast Asia.
Prime Minister Lee made a rare reference to the economic impact of the U.S. “tariff shock,” saying new stimulus measures implemented last year had helped soften the blow.
The ongoing conflict in the Middle East has also raised concerns about US President Donald Trump’s planned visit to China later this month, where he is expected to meet with Chinese leader Xi Jinping to discuss a range of issues including tariffs, export controls and Taiwan.
China has criticized the US and Israeli attacks on Iran and called for an immediate ceasefire and a return to diplomacy. In recent days, Chinese Foreign Minister Wang Yi held telephone talks with the foreign ministers of Iran and Israel, vowing that China would be an active mediator to de-escalate the conflict.
—CNBC’s Evelyn Cheng contributed to this article.
