China Lowers Growth Target to '4.5–5%'...First Cut in Four Years (Comprehensive)

Intensifying Power Struggle with the US, Economic Downturn... A Realistic Choice
CPI Target Around 2%... Fiscal Deficit at 4% of GDP
Defense Budget Up 7%... Fifth Consecutive Year in the 7% Range

China has lowered the lower end of its economic growth target for this year to 4.5%. Until last year, the country had set a target of "around 5%" growth for three consecutive years, but this year, the move is being seen as a realistic choice. Rising downward pressure on the economy, as well as heightened tensions surrounding technological and trade supremacy with the United States, are cited as reasons for the adjustment.

On March 5, at the government work report (work report) during the opening ceremony of the National People's Congress (NPC) held at the Great Hall of the People in Beijing, Chinese Premier Li Chang announced this year's economic growth target as 4.5–5%. He stated, "We will strive to achieve better results in actual work." This target is a step back from the "around 5%" target set over the past three years and is the lowest since 1991 (4.5%).

On the 5th, Li Chang, Premier of the State Council of China, is delivering a work report at the opening ceremony of the National People's Congress held at the Great Hall of the People in Beijing. Photo by AFP Yonhap News

Around 5% → 4.5–5%... Growing Burden Due to Deteriorating Internal and External Conditions

Since 2023, China has maintained a target of "around 5%" growth for three years, achieving actual growth rates of 5.2%, 5.0%, and 5.0%, respectively, during this period. However, since the third quarter of last year, a clear downturn in domestic demand and the real estate market has emerged. The growth rates for the third and fourth quarters last year were 4.8% and 4.5%, respectively. This year, the external environment also remains challenging. Tensions have been rising in the Middle East due to disputes between the US and Israel and Iran. With China highly dependent on energy transported through the Strait of Hormuz, the effective blockade of the strait has heightened uncertainty. In addition, the fierce competition over technological supremacy with the Donald Trump US administration, and the possibility of a renewed trade war, are further causes for concern.

Some predicted that the 5% target would be maintained this year, given that it marks the start of the 15th Five-Year Plan. However, it is analyzed that the target was set flexibly, taking into account domestic and external economic obstacles.

There have been several indications that Chinese authorities could lower the lower end of the economic growth target. The previous day, the state-run economic newspaper Securities Times cited economists' analyses, predicting a high likelihood that the growth target would be set in the 4.5–5% range. The Hong Kong Ming Pao also reported ahead of the National People's Congress that "21 out of 31 provinces and cities nationwide have set lower growth targets than last year," forecasting, "This year's target will be at the 4.5–5% level." Major international media outlets such as The Wall Street Journal and The Guardian have also predicted that China would present a growth target of 4.5–5% for the first time this year. The International Monetary Fund (IMF), World Bank (WB), and Organisation for Economic Co-operation and Development (OECD) have also projected China's economic growth rates for this year at 4.5%, 4.4%, and 4.4%, respectively.

Premier Li stated, "The growth target is generally aligned with the long-term goal for 2035 and is in line with the long-term growth potential of the Chinese economy."

Zhang Shu, an economist at Bloomberg Economics, said, "This does not mean a weakening of the policy stance for economic revitalization, but rather that the government is embracing pragmatism," and predicted that stimulus measures would continue strongly. However, she added, "The outbreak of war involving Iran adds significant downside risk," and "It will not be easy to achieve the 4.5–5% target." Reuters explained that lowering the growth target gives China more flexibility to implement reforms that reduce its dependence on exports.

CPI and Fiscal Deficit Ratio Remain at Last Year's Levels

This year's consumer price index (CPI) target was set at 2%. Last year, the CPI target was lowered to 2%—below 3% for the first time since 2004—and this year, it remains at the same level. In January, China's CPI rose only 0.2% year-on-year.

The fiscal deficit ratio target is set at about 4% of GDP. Last year, the fiscal deficit ratio target was raised from 3% to 4% of GDP for the first time since 1994, and this level is being maintained. This year, various measures to boost domestic demand are also expected. Bloomberg reported that while authorities are unlikely to immediately implement large-scale stimulus measures, they have indicated a willingness to continue increasing fiscal spending to stimulate demand.

Premier Li stated, "This year marks the start of the 15th Five-Year Plan," adding, "We have considered the need to secure room for economic restructuring, risk prevention, and reform efforts, and to lay the foundation for better development in the future."

This year's defense budget will be increased by 7% compared to the previous year. Although this marks five consecutive years in the 7% range, it is the lowest rate of increase since 2022. China increased its defense spending by 6.8% in 2021 and by 7.1% in 2022, and has expanded it by 7.2% annually for four consecutive years since 2023. However, Bloomberg and other outlets, citing experts, noted that actual spending may be higher than the official figure.

The targets for unemployment and new employment remain unchanged from last year: an unemployment rate of 5.5% and 12 million new jobs.

This content was produced with the assistance of AI translation services.