Breaking a 30-year record! China's economic growth target falls below 5% for the first time, and the pain of transformation has just begun

Once characterized by rapid growth, China’s economy has now officially slowed down. Facing deflationary clouds and weak domestic demand, Beijing authorities for the first time in thirty years have revised down the 2026 economic growth target to below 5%. This milestone, the lowest since 1991, not only signifies the end of the “guarantee five” era but also sends a strong signal that China is willing to slow its pace to prioritize addressing industry “internal competition” and deep structural issues.
(Background: Bloomberg reports China halts gasoline and diesel exports to “secure domestic demand” due to 57% reliance on Middle Eastern crude oil)
(Additional context: The New York Times leaks CIA meetings with Huang Renxun and Apple’s Tim Cook: China’s 2027 plan to attack Taiwan, US GDP could shrink by 11%)

Contents

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• Abandonting inflated figures, official recognition of economic slowdown
• Bright exports but trapped in “internal competition,” manufacturing as a double-edged sword
• Weak domestic demand and stagnant wages, citizens’ “fear of spending” as the biggest pain point
• A reflection of an era

China’s myth of high economic growth has officially come to an end. At the latest National People’s Congress held in Beijing, the government announced a 2026 growth target of 4.5% to 5%. This is the first time since 1991 that China’s growth target has fallen below 5%. This significant data point not only confirms the official acknowledgment of an economic slowdown but also marks a major policy shift: from the past reckless pursuit of impressive numbers to a phase of “restructuring” that confronts long-standing structural issues.

Abandoning inflated figures, official recognition of economic slowdown

The annual NPC meeting in March at the Great Hall of the People is not only a major political event in China but also a global indicator of the world’s second-largest economy’s policy direction. Over recent years, China’s growth target has remained around 5%, but facing severe domestic and international economic challenges, market experts have long expected this year’s figure to be revised downward.

In addition to lowering the growth target, China also plans to keep the central fiscal deficit around 4% of GDP. Experts suggest that a moderate reduction in growth expectations provides policymakers some breathing room. Instead of over-borrowing to meet unrealistic expansion goals, focus should be on solving long-term structural problems. However, skepticism remains about the official claim of a 5% growth rate last year, with some research institutions estimating actual growth may have been below 3%.

Bright exports but trapped in “internal competition,” manufacturing as a double-edged sword

Despite overall economic headwinds, China’s manufacturing and export performance remains robust. Last year, China posted an astonishing $1.19 trillion trade surplus, with leading automaker BYD surpassing Tesla to become the global electric vehicle leader. With cheap funding from state banks, China nearly dominates the global capacity for EVs, solar panels, and lithium batteries.

However, over-reliance on manufacturing also poses risks. Severe overcapacity and fierce competition among peers have led to a vicious cycle of “internal competition.” Companies keep cutting prices to gain market share, resulting in “more production, less profit,” squeezing industry margins. Meanwhile, large-scale dumping of products abroad to seek overseas markets has intensified trade frictions with the US and Europe.

Weak domestic demand and stagnant wages, citizens’ “fear of spending” as the biggest pain point

Breaking free from dependence on manufacturing and exports requires boosting domestic consumption, but this is currently China’s most fragile link. Recent housing market crashes have severely depleted household assets, compounded by high youth unemployment and long-term inflation, leading consumer confidence to plummet.

To address “public reluctance to spend,” the government has introduced subsidies for appliances and electric vehicles, along with increased pensions and childcare allowances. However, economists admit these measures are only superficial fixes. China lacks a comprehensive social safety net, forcing people to save heavily for future medical and retirement expenses. More critically, wages have stagnated for years. As economists say, “If people aren’t earning enough, how can they be expected to spend?”

A reflection of an era

China’s 2026 economic growth target falling below 5% is more than just a number—it’s a symbol of an era. The world’s second-largest economy is at a difficult crossroads, shifting from reliance on low-end manufacturing and infrastructure to high-tech industries like artificial intelligence for high-quality development. Slowing down may be a way to stabilize, but until a robust social welfare system is established and wages genuinely rise, China’s economic transformation will likely face prolonged growing pains.