China shows tolerance for slower growth in 2026 target
China has set its economic growth target for 2026 at 4.5-5 percent; This represents a slight decline from the 5.0 per cent pace achieved by Australia’s main trading partner in 2025.
The goal is tentative but leaves room for greater efforts to curb industrial overcapacity and rebalance the economy.
China also released its 15th five-year plan and, as widely expected, pledged investment in innovation, high-tech industries, scientific research and a “notable” – but unspecified – increase in household consumption as a share of economic output.
The commitments show that Beijing is concerned that weak domestic demand is “making the world’s second-largest economy too reliant on exports for growth” but is also unwilling to abandon efforts to develop its vast industrial complex, which provides a supply chain advantage over Washington and its allies at a time of intensifying competition.
The growth target was included in the official government report, seen by Reuters, to be presented to parliament, which opened its annual session on Thursday with a speech by Premier Li Qiang.
Economists said a lower target gave Beijing more flexibility to implement reforms such as reducing industrial overcapacity, but cautioned that the change did not represent a departure from its production-led growth model.
Analysts at the Mercator Institute for China Studies called the promises made to consumers “hollow” and said the leadership believed that comprehensive support for key sectors would best serve the national interest at a time of great power competition.
“China’s economic policy, though precariously balanced, will continue to systematically favor companies over households,” MERICS analysts wrote in a note ahead of the parliamentary meeting.
“Beijing will continue slow-moving measures to expand social welfare while using generous subsidies and tax incentives to stimulate industrial growth and development.”
In terms of stimulus, China is planning a budget deficit of 4.0 percent of gross domestic product, similar to 2025.
It set an unchanged private debt issuance quota of 1.3 trillion yuan ($A266 billion) for the central government and 4.4 trillion yuan ($A900.73 billion) for local governments.
China has pledged to increase minimum monthly pensions by 20 yuan ($A4.10) per person and basic health insurance subsidies for non-working rural people by 24 yuan ($A4.90).
He has said he wants to increase education spending, subsidize child care and reform public hospitals.
Larry Hu, Macquarie’s chief China economist, expects fiscal leverage to be adjusted flexibly depending on how the economy performs in the coming months.
“If exports remain strong, they can tolerate weak domestic consumption. Conversely, if exports fall, they will increase domestic stimulus to defend the GDP target,” Hu said.
Former central bank adviser Liu Shinjin warned at a financial forum in January that China’s record $1.2 trillion ($245.64 billion) trade surplus in 2025 – the key factor behind meeting the 2025 economic growth target – reflected not only increased manufacturing competitiveness but also weak domestic consumption.
China needs to move away from its long-standing dependence on investment and exports to a model based primarily on innovation and consumption, he said, adding that while manufacturing can be further developed, this does not mean that its share in the economy should not decline.
“China’s current underconsumption is deeply tied to a number of institutional and structural factors, making it unrealistic to completely solve these problems in the short term,” Liu said.
“But leaving them unanswered is not an option.”
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