By Kevin Yao
BEIJING, March 3 (Reuters) – China’s annual parliament meeting is expected to show tolerance for slightly slower economic growth this year, opening the door for greater, albeit not decisive, efforts to curb industrial overcapacity and rebalance the export-reliant economy.
Most analysts expect Premier Li Qiang’s report on March 5, the first day of the gathering, to announce a growth target of between 4.5% and 5%, while pledging to boost both consumption and investment in high-tech industries.
China’s 15th five-year plan, which sets strategic objectives and policies for 2026–30 and will be released the same day, is expected to reaffirm this dual, and contradictory, goal.
“Policymakers will step up efforts to spur consumption while continuing to stress tech-driven new productive forces,” said a policy adviser who expects the target to shift to a range, speaking on condition of anonymity due to the topic’s sensitivity.
CHINA UNLIKELY TO FULLY RESOLVE POLICY CONTRADICTIONS
This dual pledge is decades old but Beijing has been far more successful in expanding its vast industrial complex than the consumer sector, turning China into a mighty manufacturing power that dominates strategic supply chains and giving it leverage in the intensifying rivalry with the U.S. and its allies.
China’s 5% growth last year has largely been achieved through a $1.2 trillion trade surplus, while domestic consumption lagged.
This growth model has fuelled unsustainable debt, wasteful investment, deflationary pressures and industrial overcapacity. But it is hard for Beijing to completely give it up at a time of heightened geopolitical tensions that call for a higher degree of self-sufficiency in key industries such as semiconductors and aircraft – where China is still catching up with the U.S.
“There is clearly some tension between these two agendas and so we will be looking to the full five-year plan to clarify what balance the leadership will strike,” analysts at Capital Economics said in a note.
“That balance will determine how much progress is made in tackling overcapacity and deflation over the next few years.”
LOWER TARGET MAY OFFER FLEXIBILITY
A more flexible growth target would give policymakers room to pursue some painful structural reforms, such as accelerating efforts started last year to curb industrial capacity and contain price wars in various sectors.
Expectations that Beijing may set this year’s growth target as a range came after about two thirds of China’s provincial governments downgraded their own ambitions, even if in some cases that only meant shifting wording from ‘above’ to ‘around.’
Guangdong, the country’s largest provincial economy, set its 2026 growth target at 4.5–5%, down from “around 5%” in 2025. Jiangsu, the second-largest, set a 5% target, compared with “above 5%” last year.
“If confirmed, this would signal a stronger willingness among policymakers to tolerate slower but more sustainable growth, rather than relying on debt-fuelled investment stimulus that risks exacerbating supply–demand imbalances,” said Michelle Lam, Greater China economist at Societe Generale.
Morgan Stanley analysts are among those expecting the target to remain unchanged at around 5%. They estimate the weighted average of provincial targets at 5.1% versus last year’s 5.4%.
They said “Beijing values anchoring confidence” and that the first year of a new quinquennial plan “is not the moment to blink.”
BALANCING ACT
Beijing is expected to keep the budget deficit at 4.0% of GDP, with debt issuance plans similar to last year.
The U.S. Supreme Court’s decision last month to strike down President Donald Trump’s “reciprocal tariffs” imposed in 2025, including on China, reduces the need for more sizeable stimulus.
That will shift analysts’ focus from how much China is planning to spend to where exactly.
Most policy advisers believe China should lift household consumption’s share of GDP to 45% by 2030, from roughly 40% currently. Setting a numerical target would show higher determination than in the past, but still leaves China lagging the global average by about 15 points.
Despite headline-grabbing tech breakthroughs – from DeepSeek’s jolt to the global AI industry to its dancing humanoid robots — the broader economy is still losing steam.
In nominal terms, GDP grew only 4.0% in 2025, the slowest pace since 1976, the pandemic aside. The GDP deflator – the broadest measure of prices – fell 1%, its third-straight annual decline, underscoring chronic excess supply and weak demand.
“Relatively high real GDP growth coexisted with an overall economy that was running cold and in a tightening state,” Zhang Jun, dean of the School of Economics at Fudan University, wrote in an article last week, adding the headline number “does not match how people actually feel.”
One way of balancing ambitions on the production side, some analysts say, could be to reduce support for investments in industrial capacity, while still spending more on technological upgrades and research.
“We will no longer focus on expanding industrial capacity,” said Tu Xinquan, dean of the China Institute for WTO Studies at the University of International Business and Economics.
“Instead, greater emphasis will be placed on developing cutting‑edge technologies.”
(Reporting by Kevin Yao; Graphic by Kripa Jayaram and Ellen Zhang; Editing by Marius Zaharia and Shri Navaratnam)
