China has forecast its GDP growth at the lowest level in over three decades! The world’s second largest economy is slowing down due to multiple external and internal headwinds. China has fixed its annual economic growth target at between 4.5 percent and 5 percent, which marks the lowest growth goal the country has set since 1991. In the meantime, India continues to be the world’s fastest growing major economy, with a potential growth rate seen at 7%.The GDP growth target for 2026 appeared in a draft of the government’s yearly work report. Although the range broadly matches market expectations, it is the first reduction since officials adjusted the goal to around 5% in 2023. In 2020, authorities did not announce any growth target due to the disruptions caused by the Covid pandemic.
Why is China’s economy slowing?
The new target reflects mounting challenges from Donald Trump’s tariffs, the global uncertainty linked to the US-Iran conflict, and persistent domestic economic pressures including a property market downturn and rising unemployment.The revised target, broadly comparable with last year’s goal, was announced by Chinese Premier Li Qiang while presenting his government work report at the opening session of the annual National People’s Congress in Beijing on Thursday.China’s economy expanded by 5% last year to reach $20.01 trillion, supported largely by strong export performance despite Trump tariffs, while domestic consumption continued to remain weak.During the presentation of his annual work report, Li said the government aims for economic growth of 4.5–5% this year and will seek to achieve stronger results in actual implementation.The government also outlined several key development objectives for the year. These include maintaining the surveyed urban unemployment rate at about 5.5 per cent, generating over 12 million new urban jobs, and keeping the consumer price index increase near 2 per cent.Li added that authorities would work to ensure income growth keeps pace with economic expansion, maintain a broadly balanced external payments position, and sustain grain production at around 700 million tonnes. The government also aims to reduce carbon dioxide emissions per unit of GDP by roughly 3.8 per cent.Addressing the persistent weakness in domestic demand, which has left China more reliant on exports to support growth, Li said the government plans to take steps to stimulate consumption and introduce an income growth plan for both urban and rural residents.The revised target also suggests that China is increasingly comfortable with a more moderate growth trajectory as it attempts to shift toward steadier and more sustainable drivers of expansion. Policymakers are seeking alternatives to the earlier model that relied heavily on debt-funded investment in property and infrastructure. By setting a lower growth goal, the government may also ease the need for large-scale stimulus measures, particularly at a time when the global trade outlook remains uncertain.Strong export performance contributed about one-third of China’s 5 percent economic expansion last year, which is the largest share since 1997. The heavy dependence on overseas demand points to a growing structural imbalance, as attempts to stimulate household consumption have not yet been sufficient to counter the effects of the downturn in the property sector.China also said that the headline fiscal deficit will remain at a record level of 4 per cent of gross domestic product. This indicates that policymakers are prepared to sustain elevated government spending and borrowing in order to support demand and prevent the economy from slowing further.The authorities have retained the consumer inflation target at 2 per cent after lowering it last year in recognition of persistent deflationary pressures. The benchmark is generally regarded as an upper limit rather than a fixed goal. Consumer prices showed no growth in 2025, marking the weakest inflation reading since 2009.In addition, the government reaffirmed its plan to generate more than 12 million new jobs.
