China sets lower growth target as domestic consumption lags

China Adjusts Growth Outlook Amid Slowing Domestic Consumption

During this week’s National People’s Congress, China announced a revised economic growth forecast for 2026, marking the first time in decades the target has fallen below 5%. The government now aims for expansion between 4.5% and 5%, a significant slowdown from the 5% goal set in 2025. This adjustment reflects concerns over stagnating consumer spending and a weakening property market.

At the same time, Beijing continued to prioritize military spending, increasing its defense budget by 7% for the year. The total allocation for the 2026 military budget stands at 1.90 trillion yuan (€238 billion, $276 billion), roughly a third of the U.S. military expenditure. This funding will support various initiatives, including personnel salaries, cyberwarfare capabilities, and advanced equipment procurement, according to analysts.

While the growth rate is projected to decrease, officials emphasized that the government remains committed to achieving “even better results.” The decision to lower the target aligns with a broader shift in China’s economic strategy, moving away from reliance on exports and industrial output toward consumption-driven growth.

Two Sessions and Policy Priorities

The growth target was revealed during the annual Two Sessions, a political event where Premier Li Qiang opened the National People’s Congress (NPC) on Thursday. The NPC, composed of nearly 3,000 members, serves as a formal body that approves policies set by Chinese Communist Party (CCP) leadership. Its closing session next week will finalize the 2026 budget and a five-year plan outlining policy directions through 2030.

“The quality of growth is more important than the speed of growth,” noted Zhiwei Zhang, chief economist at Pinpoint Asset Management, in a statement shared by AFP. He described the reduction in the growth target as a pivotal move signaling a shift in economic priorities.

China’s economic expansion has decelerated over recent years as the economy transitions from rapid growth to a more mature phase. The government’s focus on domestic consumption growth comes as a response to challenges in sustaining demand and stabilizing key sectors like real estate.

Despite the lower growth projection, the CCP reiterated its commitment to modernizing the economy, highlighting the need to balance speed with sustainability. Li Qiang also emphasized that the increased military budget will “enhance our strategic capacity to protect China’s sovereignty, security, and development interests.”