Theme of the Day: China’s Two Sessions

At the annual session of the National People’s Congress (NPC), the government’s “work report”, which lays out its goals for the year was announced during the Two Sessions. China's 2026 GDP growth target was lowered to 4.5-5%, after three straight years of “around 5%” targets. Most other targets were left unchanged. The slight softening shows that growth stability remains important, but steady fiscal targets are also signalling a reluctance to lean too heavily on fresh stimulus to bolster growth. GDP growth target lowered for 2026: China's annual target-setting is always an important event. Since GDP growth targets were first published in 1990, China has fallen short of the target only a couple of times. This year's GDP growth target was reduced to 4.5-5.0%, a slight softening from the more ambiguous "around 5%" target set in the past three years. With the new target, there appears to be a tolerance for slower growth, which should give policymakers more flexibility to pursue quality growth, a priority in recent years. Combined with China's anti-involution drive, there will be a focus on reducing wasteful and duplicative investment while improving synergies and building on China's long-term strategic direction. As the 15th Five-Year Plan has laid out, the key focuses are on improving industrial modernisation, improving technological self-reliance, and ramping up domestic demand. China's longer-term growth ambitions remain unchanged. The government work report outlined an intention for "laying a solid foundation for doubling per capita GDP by 2035 compared to 2020," a key goal set by President Xi in the past. Other key targets mostly stable for 2026: There was little surprise in the other targets as well. The inflation target, having been reduced to "around 2%" last year, remained unchanged. The fiscal targets were arguably the only area where there was a more lively debate on whether or not we'd see adjustments. While the fiscal deficit-to-GDP target of around 4% was expected to remain the same, bond issuance targets were raised, with another RMB 4.4tn of special local government bond issuance and RMB 1.3tn of ultra-long-term bond issuance targeted this year. The report also noted that the central government will ramp up fiscal transfers to the local government. The key focus this year will be on boosting domestic demand: The government work report also laid out the key objectives for the government in 2026. In pole position is focusing on building a strong domestic market and boosting domestic demand. This sentiment has been repeatedly featured in past high-level meetings, and the government work report mentioned "special action to boost consumption" this year. China's Five-Year Plan locks in on four strategic priorities for the rest of the decade: China's Five-Year Plans often give insight into the longer-term priorities and can be seen as setting the framework for future policy direction. For the current Five-Year Period of 2026-2030, the government work report highlights four strategic priorities: promote high-quality development, strengthening the domestic economy, promote common prosperity, and coordinate development and security. The trends we have seen in the past few years are likely to continue, with an increased focus on moving up the supply chain and improving tech self-reliance. The big question mark will be how successful China is in boosting its domestic demand, as domestic confidence remains tepid and continues to restrain this effort.