China: Tolerating Slower Growth to Accelerate Economic Structural Reforms

■ China lowers its 2026 growth target from "approximately 5.0%" to "4.5%-5.0%".  

■ Through "building a strong domestic market" and "accelerating the cultivation and expansion of new growth areas," the aim is to foster advanced industries and create markets. 
 
China convened the National People's Congress (NPC) on March 5th, and the government work report on the first day outlined the economic targets and policy guidelines for 2026. Regarding economic targets, the real GDP growth rate was lowered from "approximately 5.0%" in the previous year to "4.5%-5.0%," with a further explanation that efforts will be made to achieve a higher level. Other key indicators, such as the number of new urban jobs and the consumer price index (CPI) increase, remain unchanged from the previous year, while the target for energy consumption per unit of GDP was raised from "a reduction of approximately 3.0%" in the previous year to "a reduction of approximately 3.8%." Overall, the report places greater emphasis on the quality of growth than on high growth and hints at tolerating a relatively moderate slowdown. 

 
In terms of economic policy operations, similar to the previous year, the policy will continue to be "more proactive" in fiscal policy and "moderately loose" in monetary policy under the principle of "seeking progress while maintaining stability." Regarding fiscal policy, both general public expenditure (30.97 trillion yuan, an increase of 1.27 trillion yuan from the previous year's target) and the fiscal deficit (5.89 trillion yuan, an increase of 230 billion yuan) have expanded. However, the fiscal deficit as a percentage of nominal GDP (4.0%) remains the same as the previous year, and the issuance of ultra-long-term special treasury bonds (1.3 trillion yuan) and local government special bonds (4.4 trillion yuan), which are used to fund infrastructure investment, also remain unchanged from the previous year. Against the backdrop of continued economic slowdown, the fiscal expenditure plan still emphasizes the efficiency of fund utilization. Regarding monetary policy, the plan proposes to flexibly implement easing measures such as interest rate cuts and liquidity injections. 

 
Among the key policy tasks (government work tasks), "building a strong domestic market" is the top priority. Specific measures to expand domestic demand in the consumption sector include increasing residents' income, promoting the replacement of old consumer goods with new ones, and developing the service consumption market for leisure, culture, and entertainment, largely continuing previous policies. The second point, "Accelerating the cultivation and expansion of new growth areas," proposes developing integrated circuits, aerospace, biomedicine, and the low-altitude economy (such as drones) in new industries; and developing new energy, quantum technology, embodied artificial intelligence (AI), brain-computer interfaces (BCI), and 6G in future industries. While the content is comprehensive as in previous years, it can be argued that China's economic policies are not limited to compensating for insufficient demand or stabilizing the economy, but also attempt to cultivate advanced industries by creating markets (i.e., creating potential demand). 

 
Given the solid foundation and comprehensive progress in the "socialist modernization" goal proposed in the 15th Five-Year Plan, China is expected to place greater emphasis on supply-side reforms, including support for key areas to achieve technological self-reliance. Lowering the growth rate target should be understood as a measure to accelerate economic structural reforms.