China sets lowest growth target in decades as consumption lags

China set its lowest annual growth target in decades on Thursday, at 4.5-5 percent, as the government outlined plans to tackle sluggish consumption and a flagging property market.

Beijing also used its showpiece annual political gathering to announce a seven percent increase in its defence budget, the second largest in the world, in line with previous years as it looks to counter the United States and enforce its claims over Taiwan and the South China Sea.

China is the world's second-largest economy and accounts for a third of global growth, but it faces serious structural imbalances and US trade pressures despite sustaining strong exports.

"The achievements of the past year were hard-won," Premier Li Qiang said, as he opened the annual meeting of the National People's Congress (NPC), China's parliament, on Thursday morning.

"Rarely in many years have we encountered such a grave and complex landscape, where external shocks and challenges were intertwined with domestic difficulties and tough policy choices."

This year's growth target is the lowest since 1991, according to AFP research.

The only exception was in 2020, when none was set as the economy reeled from the Covid-19 pandemic.

Growth has been slowing for years as the Chinese economy matures.

The ruling Communist Party (CCP) has said repeatedly that it must shift away from traditional drivers like exports and manufacturing towards consumption.

They face an uphill battle, with consumer confidence stubbornly low. 

"The recent employment situation and the consumption situation are all on a downward trend," Cynthia Zhang, who works in luxury goods, told AFP on the streets of Shanghai. 

"I feel like everyone feels more unsettled, so everyone is consuming in a more rational way, including my friends and family."

- Quality over speed -

Such matters are top of the agenda at the ongoing "Two Sessions", a series of highly orchestrated meetings of the NPC and political advisory body the Chinese People's Political Consultative Conference, which began Wednesday. 

NPC delegates from across China will gather in the cavernous Great Hall of the People to approve bills and reforms that have largely already been decided by Xi and the CCP elite. 

The parliament has never voted down an item on its agenda, according to analysis site NPC Observer.

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The government has said its focus is now on "high-quality" growth through upgrading industry, investing in new technologies and pursuing green development.

This is now more important than speed of growth, said Pinpoint Asset Management's Zhiwei Zhang, and the cut in the GDP target "is a big step that signifies this shift of policy priority". 

Other "main projected targets for development" in 2026 include an increase in the consumer price index of around two percent and "growth in residents' income in step with economic growth", according to the report delivered by Li.

The government also outlined stimulus measures for the year and set a budget deficit of around four percent of GDP, similar to last year.

The public budget is set to reach 30.01 trillion yuan -- an increase of 4.4 percent over last year.

The report said 1.3 trillion yuan ($188.5 billion) of ultra-long special treasury bonds would be issued for "major national strategies", along with 4.4 trillion yuan of local government special-purpose bonds. 

- No change in direction? -

However, analysts fear this year's plan will not divert the economy from its current trajectory. 

"This is a time for central government to increase its budget deficit, to boost the economy," Zhu Tian, economics professor at the China Europe International Business School, told AFP.

Consumption subsidies are set to decline slightly, Yue Su of the Economist Intelligence Unit noted, "reflecting the government's desire to use such tools more selectively... to curb destructive price competition".

However, the current model still favours the supply side which risks directing more resources toward production, "potentially exacerbating existing economic imbalances", she said.

As well as plans for the year, Beijing published a draft of its 15th Five-Year Plan on Thursday, mapping out national development goals until 2030.

The plan also focuses on boosting consumption, as well as on technological development across fields including artificial intelligence, high-end manufacturing, and energy and resource security.

China is investing heavily in high-tech industries such as semiconductors and artificial intelligence to boost its self-reliance in turbulent geopolitical times. 

The Five-Year plan also outlined goals including doubling the 2020 GDP per capita by 2035, reducing the country's unemployment rate to below 5.5 percent, and boosting environmental progress. 

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