China Unveils Revised Economic Growth Forecast Amid Domestic Challenges

During this week’s Two Sessions political summit, China announced a new economic growth target for 2026, setting it at 4.5% to 5%. This marks the lowest annual projection for the nation in decades, a notable departure from last year’s 5% goal. The decision reflects the government’s efforts to stabilize ailing domestic consumption and a waning property sector.

Political Context and Policy Endorsement

The National People’s Congress (NPC), a largely symbolic legislative body with nearly 3,000 members, is holding its annual session. As Premier Li Qiang opened the event, the NPC is anticipated to approve the 2026 fiscal plan, the annual economic report, and a five-year strategy for policy priorities through 2030. Despite the reduced growth target, the government report emphasized a commitment to “achieving even greater outcomes.”

“While acknowledging our progress, we are also aware of the challenges ahead,” the report stated, underscoring a shift in focus toward consumption as a key driver of economic expansion.

Zhiwei Zhang, chief economist at Pinpoint Asset Management, noted that the lowered target signifies a deliberate move away from traditional growth models reliant on exports and manufacturing. “This step highlights the growing emphasis on consumption quality over speed,” he wrote in a statement shared by AFP.

Military Budget Expansion

Simultaneously, China increased its military expenditure by 7%, allocating 1.90 trillion yuan (approximately €238 billion or $276 billion) to defense. This amount constitutes roughly one-third of the U.S. military budget. Li Qiang highlighted the strategic importance of the spending, stating it would “enhance our capacity to protect China’s sovereignty, security, and development interests.”

Although the 2026 budget is slightly lower than the previous year’s, the military spending has grown by 6% to 7% annually since 2016. Analysts suggested the funds would support military salaries, exercises near Taiwan, cyberwarfare capabilities, and the procurement of advanced equipment.