MNI: Lower China GDP Growth Eyed Amid Economic Headwinds

China is likely to allow GDP growth to fall below 5% in 2026 amid weak domestic demand and pressure on exports, as authorities seek to avoid massive stimulus that would compress future policy space, while stepping up support for services consumption and investment to stabilise employment, economists and policy advisors told MNI.

Given persistent downward pressure, 2026 GDP growth could reach around 4.8% y/y, with a possible lower official target from last year’s “around 5.0%” to “between 4.5% and 5.0%,” said Wang Qing, chief macro analyst at Orient Golden Credit Rating International. The impact of elevated U.S. tariffs on Chinese exports continues to materialise, weakening external demand’s contribution to growth, while insufficient domestic demand remains unresolved, he noted.

A lower GDP target within the 2026 Government Work Report, to be published on March 5 during the National People’s Congress, would help preserve policy space, avoid a sustained rapid rise in government debt and guide local policymakers to focus more on improving growth quality and advancing economic transformation, Wang said.

All 31 provinces as of Feb 9 had announced 2026 growth targets. Compared with 2025, 21 provinces lowered their goals, including major economic hubs Guangdong, Jiangsu and Zhejiang. Guangdong reduced its target from “around 5%” to “4.5%-5%,” while Beijing and Shanghai maintained targets of “around 5%.” The weighted average provincial growth target stands at 5.1%, down 0.2 percentage points from 2025.

Yuan Haixia, director of the Research Institute at China Chengxin International Credit Rating, said lower regional targets reflect a rational assessment of current downward pressures, aimed at avoiding “overly forceful” stimulus and preserving room to address uncertainties. (See MNI: China Buying Time For 'Competitive Coexistence'- Advisors)

She pointed to persistent headwinds including a slowing global economy, geopolitical spillovers and intensifying trade frictions, alongside domestic challenges such as weak demand, a soft property sector, structural transition pressures and low price levels.

Despite this, Yuan expects policymakers will still strive for around 5% growth. To achieve long-term development objectives through 2035, China’s average annual GDP growth from 2026-2035 needs to remain above 4.2%, she said, adding that as the first year of the 15th Five-Year Plan, 2026 requires relatively solid growth to avoid pushing pressure into later years.

Bruce Pang, senior fellow at the National Institution for Finance and Development, said key challenges this year include an uneven consumption recovery, weak private investment, property-sector drag on industrial supply chains and local government finances, and rising external demand uncertainty. (See MNI: China's Lower Home Prices To Pressure Bank Disposals)

The Government Work Report is expected to emphasize expanding investment, strengthening science and technology innovation, boosting consumption, improving property support policies and enhancing fiscal policy precision.

DEMAND PRIORITY

Wang said policymakers will prioritise a domestic demand driven strategy and the development of a stronger domestic market, including consumption promotion and investment expansion. Fiscal funding for consumption subsidies could rise to CNY500 billion in 2026 from CNY300 billion last year, he added.

Yuan said subsidies are likely to expand into services, including tourism, culture and entertainment, elderly care and household services.

To mitigate trade uncertainty, China will deepen engagement with Belt and Road partners, RCEP members and Global South economies to reduce reliance on any single export market, she said.

EMPLOYMENT

Yuan expects the surveyed urban unemployment target to remain around 5.5%, though youth labour-market pressure may intensify as graduate numbers are projected to reach 12.7 million in 2026, up 480,000 y/y. Youth unemployment for ages 16-24 stood at 16.5% in 2025, well above the headline rate.

Wang said persistently high youth unemployment since 2021 largely reflects the property-sector downturn, while high-tech manufacturing has had less capacity to absorb labour, underscoring the need for stronger employment support for key groups and further property-market stabilisation measures.