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China sets modest growth target as economy slows
Beijing has unveiled an annual economic growth target of 4.5%-5% for 2026, the lowest in over three decades, as policymakers acknowledge the limitations of the country's traditional growth model. The announcement came during the Two Sessions, China's most significant annual political gathering, held in the capital.
New focus on consumption over infrastructure
For years, China's economic expansion relied on state-led investment in real estate, infrastructure, and exports. However, officials now admit this approach is no longer sustainable. Instead, they are prioritizing measures to increase household incomes and stimulate consumer spending, marking a notable shift in strategy.
"This is Beijing's recognition that the old growth model has run its course," said Dexter Roberts, a senior fellow at the Atlantic Council's Global China Hub. The challenge, he added, lies in convincing households to spend more and determining whether consumption can truly drive growth.
Policies aim to ease financial burdens on families
The government's new measures include expanding elderly care services, enforcing paid annual leave, and providing additional support for families raising children. An "urban-rural resident income growth plan" has also been proposed to narrow income disparities and put more money in people's hands.
Officials describe this approach as "investing in people," arguing that households are more likely to spend if they feel secure about healthcare, retirement, and family expenses. However, skepticism persists online, with some social media users questioning the motives behind the policies.
"This is not to let you rest, it's to make you spend money,"
Weibo user
Others called for stronger labor protections, such as enforcing an eight-hour workday and a five-day workweek, before discussing marriage or parental leave.
Consumption lags behind global averages
Household spending in China accounts for roughly 40% of GDP, well below the global average of 55% and around 60% in advanced economies. Recent data suggests government incentives can spur spending, but consumer confidence remains fragile.
During the Spring Festival holiday, authorities distributed billions of yuan in vouchers to encourage travel and entertainment. While travel revenue rose by 19% compared to the previous year, average spending per traveler declined, and cinema box office earnings dropped sharply, indicating selective spending habits.
Property downturn weighs on consumer confidence
The prolonged slump in China's real estate market is a major drag on consumption. Property and related industries once contributed up to a quarter of the country's economic activity, but a debt crackdown on developers has led to defaults, stalled projects, and falling home prices since 2021.
For decades, real estate served as both housing and a primary store of wealth for Chinese families. Rising property values previously boosted household confidence and spending, but the current downturn has reversed this "wealth effect."
"China's consumption challenge is largely about replacing the massive housing-investment demand engine," said Gerard DiPippo of the RAND China Research Center. The property crisis has also hit employment in construction and related sectors, further dampening incomes and consumer sentiment.
Structural challenges persist
Beyond the property sector, China faces other economic headwinds, including declining birth rates, high youth unemployment, and deflationary pressures. When consumers expect prices to fall, they often delay purchases, exacerbating the slowdown.
While Beijing has introduced measures to stabilize the property market-such as cutting mortgage rates and easing home-buying restrictions-these steps have yet to reverse the downturn. Analysts warn that the transition to consumption-led growth will likely be gradual.
"The current policy framework stabilizes the consumption share rather than actively increasing it,"
Gerard DiPippo, RAND China Research Center
Future growth hinges on consumer confidence
For the past four decades, China's economic rise was driven by construction, exports, and infrastructure. The next phase may depend on whether households feel secure enough to spend, raise families, and sustain the consumer economy.
Premier Li Qiang acknowledged the challenges in the government's work report, noting that "the imbalance between strong supply and weak demand is acute." The success of China's new strategy will hinge on its ability to restore confidence and address deep-rooted structural issues.
