China sticks to economic growth target of ‘around 5%’ despite a looming trade war

President Xi Jinping and Chinese Premier Li Qiang arrive for the opening session of the NPC at the Great Hall of the People in Beijing, yesterday

The Chinese government unveiled an annual economic growth target of “around 5%” yesterday, despite the possible negative impact of a looming trade war with the United States, and pledged to address what it called “inadequate” consumer spending at home.

The target, announced at the opening session of the annual meeting of China’s legislature, is the same as the last two years but will likely be more difficult to achieve because of higher U.S. tariffs on Chinese products and other economic headwinds. The use of the modifier “around” gives the government some wiggle room if growth falls short of the target.

The level signals the government’s intention to try to stabilize growth in challenging economic times but hold back on more dramatic action that some economists say is needed to supercharge it.

The government also said in a draft budget released yesterday that defense spending would rise 7.2% this year to 1.78 trillion yuan ($245 billion), second only to the United States.

It released the growth target in a separate report, portions of which were presented to the nearly 3,000 members of the National People’s Congress by Premier Li Qiang in a 55-minute address. The 32-page document acknowledged both international and domestic challenges.

“An increasingly complex and severe external environment may exert a greater impact on China in areas such as trade, science, and technology,” the report said. “Domestically, the foundation for China’s sustained economic recovery and growth is not strong enough. Effective demand is weak, and consumption, in particular, is sluggish.”

The IMF has projected China’s economy will grow 4.6% this year, down from 5% in 2024, according to Chinese government statistics.

The annual report placed more emphasis on reviving domestic demand and consumption than last year’s version, echoing a shift by the ruling Communist Party at meetings in December. It said the government should “make domestic demand the main engine and anchor of economic growth.”

The question is whether the steps the government takes will be enough to stabilize the economy and reach its targets for growth, employment and other economic indicators.

“Achieving this year’s targets will not be easy, and we must make arduous efforts to meet them,” the report said.

It offered some details on the party’s plans for a “more proactive fiscal policy,” including a rise in the government budget deficit from 3% to 4% of GDP, or the size of the overall economy.

Economists expressed doubts over whether the policies will do enough, noting that the government reduced its inflation target to 2% from 3% last year, suggesting leaders have accepted that the economy is still mired in deflation, or a cycle of weakening prices.

The degree of support is “more modest than it may appear,” Julian Evans-Pritchard of Capital Economics said in a report. “We remain skeptical that it will be sufficient to prevent growth from slowing this year, especially given the headwinds on the external front and the lack of a more pronounced shift in government spending toward support for consumption.”

The government will issue 1.3 trillion yuan ($180 billion) in ultra-long term bonds, up from one trillion yuan last year, the report said. Of that, 300 billion yuan would go toward a program launched last year that offers rebates to consumers who trade in automobiles or appliances for new ones, doubling central government support for the program.

At the same time, Chinese leader Xi Jinping wants to wean the economy off its long-running dependence on the highly indebted real estate market.

He is directing economic resources into developing a more innovative, high-tech economy — and with growing restrictions on U.S. technology exports to China, one that isn’t beholden to other countries for the most powerful semiconductors and other electronic components.

That has remained an overarching long-term economic goal of the Communist Party, though it has enacted various measures since September that suggest a shift in emphasis toward shoring up growth in the short-term.

“A target of around 5% is well aligned with our mid- and long-term development goals and underscores our resolve to meet difficulties head-on and strive hard to deliver,” Li said, reading from the government report.

The report highlighted artificial intelligence in a section on fostering “industries of the future,” saying the government would support the application of large-scale AI models, smart manufacturing equipment, connected vehicles and intelligent robots. SIMINA MISTREANU & KEN MORITSUGU, BEIJING, MDT/AP