China sets lowest GDP growth target ever: between 4.5% and 5%

China on Thursday set its 2026 GDP growth target at between 4.5% and 5%, the lowest target recorded since the early 1990s, as Beijing grapples with persistent deflationary pressures and trade tensions with the United States.

That target, outlined in the government’s work report released Thursday, marks a downgrade from “around 5%” set over the past three years and is the most modest target on record for the world’s second-largest economy, except for 2020, when Beijing did not set a growth target due to the pandemic.

Beijing also kept its budget deficit target unchanged from last year’s “around 4%” of GDP, as the National People’s Congress, the country’s top legislative body, holds its annual meeting this week.

The 4% deficit target first set in 2024 was the highest on record since 2010, according to data accessed through Wind Information. The previous high was 3.6% in 2020.

Chinese authorities kept their annual consumer inflation target stable at “around 2%.” First set in 2025, it is the lowest level in more than two decades and signals an implicit recognition by Beijing of lackluster domestic demand.

The inflation target acts more as a ceiling than as a goal to be achieved. Throughout 2025, price growth remained stable and reached 0.7% excluding food and energy prices, as consumer confidence remained weak.

Chinese Premier Li Qiang acknowledged in the work report a plethora of thorny issues facing the economy, including the “dramatic change of the international economic and trade environment” and “deep-rooted structural problems” that have weighed on consumption and investment growth.

“The growth target is quite realistic. It is a further shift from a ‘number first’ mentality to a ‘quality first’ one,” said Tianchen Xu, senior economist at the Economist Intelligence Unit.

“Beijing doesn’t necessarily view high growth rates as a good thing, because they can incentivize local officials to exaggerate growth with white elephant projects. — costly investment with little economic utility and data manipulation,” Xu said.

Beijing also seeks to keep the urban unemployment rate, which was 5.2% last year, at around 5.5% this year and add 12 million new jobs in urban areas.

China plans to issue 1.3 trillion yuan ($188.5 billion) in special ultra-long-term Treasury bonds in 2026, the same as last year, and allocated 250 billion yuan to support the consumer goods swap program and another 300 billion yuan for capital replenishment in large state-owned commercial banks.

The government also plans to issue 4.4 trillion yuan in local government special purpose bonds, the same as last year, to finance major projects and relieve local government debt stress, according to the work report.

“Government spending this year will still be quite large in scale,” Li said in the work report, noting that boosting consumption and raising living standards should be a priority.

The relatively modest fiscal stimulus was also aligned with the more conservative growth target, Xu noted.

Beijing pledged to continue implementing “appropriately accommodative” monetary policy to boost growth, including possible interest rate cuts and a lower reserve requirement ratio.

“We will develop new and better structural monetary policy instruments, expand them as necessary, and refine the way they are used,” Li said.

The country’s annual parliamentary meeting, known as the “Two Sessions,” began on Wednesday with the opening ceremony of the Chinese People’s Political Consultative Conference, a top policy advisory body.

The NPC began its meeting on Thursday and is scheduled to conclude its annual session on March 12. The heads of the economy and finance ministries are expected to speak to reporters on Friday afternoon.

While China’s economy expanded 5% last year, the country has entered a fourth year of deflation amid a slump in the real estate sector, weak consumer confidence and tensions over local government debt. Retail sales increased 3.6% in 2025 and deflation at the factory level deepened, falling 2.6% compared to the previous year.

Investment in fixed assets fell 3.8% last year, the first annual decline in decades. The real estate drag deepened with investment in the sector falling by 17.2%.

This year’s parliamentary meeting comes after the world’s second-largest economy endured nearly a year of intense trade war with the United States that accelerated its diversification of exports from the United States to Europe and Southeast Asia.

Premier Li made a rare mention of the economic impacts of the US “tariff shock”, saying new stimulus measures implemented last year had helped cushion the blow.

The ongoing conflict in the Middle East has also raised concerns about US President Donald Trump’s planned visit to China later this month, where he was expected to meet with Chinese leader Xi Jinping to discuss a range of issues including tariffs, export controls and Taiwan.

China has criticized the US and Israeli attacks on Iran and called for an immediate ceasefire and a return to diplomacy. Chinese Foreign Minister Wang Yi has held phone calls with his Iranian and Israeli counterparts in recent days, presenting China as an active mediator to de-escalate the conflict.

— CNBC’s Evelyn Cheng contributed to the story.