China has set its economic growth target for this year at 'around 5%.' Compared to global economic forecasts predicting it will be around 4%, this is an aggressive target. Exports, which drove the Chinese economy last year, have had a difficult time playing their role this year due to tariffs imposed by U.S. President Donald Trump. China plans to move forward this year by focusing on domestic demand and advanced technology industries such as artificial intelligence (AI). To this end, it has made it clear that it will inject more money into the economy, raising its fiscal deficit ratio for the first time in 30 years.
◇ Growth rate target for this year is around 5%… Inflation target reduced to 2%
Li Qiang, Premier of the China State Council, announced on the 5th during a work report at the opening ceremony of the National People's Congress (NPC) in Beijing that the economic growth target for this year is set at 'around 5%.' This maintains the same level for the third consecutive year since 2023, which is in line with market expectations. However, Raymond Yong, chief economist for Greater China at Australia and New Zealand Banking Group (ANZ), noted that 'it's an ambitious growth target that requires government support,' adding, 'This figure shows that the Chinese government has decided to support growth amid external uncertainties and trade tensions with the U.S.' Bloomberg's average market forecast for China's economic growth rate this year is 4.5%.
The backdrop for the perception of China's economic growth target this year as aggressive is the trade war with the U.S. Trump has imposed a total tariff of 20% on Chinese imports twice since his re-election. Last year's exports accounted for one-third of China's economic growth, and this aspect is now at risk of collapse. Aware of this, Premier Li also remarked, 'The external environment is becoming increasingly complicated, and it is having a greater impact on our trade, science, technology, and other areas,' and added, 'Unilateralism and protectionism are deepening, and the multilateral trading system is being disrupted, leading to higher tariff barriers.'
To make matters worse, the depth of sluggish domestic demand is increasing. China has also acknowledged this. In this work report, the target inflation rate for the consumer price index (CPI) was revised downward from the previous 'around 3%' to 'around 2%,' the lowest level since 2003. The Asia Society Policy Institute stated, 'This implicitly acknowledges the sluggishness of domestic demand.' U.S. CNBC remarked, 'The new inflation target will serve more as an upper limit rather than a target to be achieved.' In fact, China's CPI rise last year was only 0.2% compared to the same period last year.
◇ Stimulating domestic demand and nurturing advanced industries to drive economic growth
China has made it clear that it will prioritize domestic demand over exports this year. In the top ten major tasks, 'stimulating consumption, improving investment efficiency, and expanding domestic demand' has risen from third to first place compared to last year. To support this, more money will be injected into the economy. A representative example is setting the fiscal deficit ratio at 'around 4%' of gross domestic product (GDP). This is the highest level in 30 years since 1994. Last year, it was 3.0%, which was lower than the actual fiscal deficit ratio in 2023 (3.8%). Bloomberg noted, 'China, which has tried to keep its official fiscal deficit ratio below 3% for decades, has crossed an implicit red line, showing its willingness to take unconventional measures to boost domestic demand as exports are threatened due to Trump and the trade war.'
Looking at the fiscal deficit target, the issuance amount of ultra-long-term special government bonds is set at 1.3 trillion yuan (approximately 260.9 trillion won), exceeding the 1 trillion yuan (approximately 200.7 trillion won) issued last year. Of this, 300 billion yuan (approximately 100.4 trillion won) is planned to be used for the 'exchange' budget applicable to electric vehicles, home appliances, and other products. Additionally, there will be an issuance of special government bonds worth 500 billion yuan for capital reinforcement of state-owned banks. Regarding the monetary policy sector, Premier Li stated, 'We will timely lower bank reserve ratios and interest rates, maintain ample liquidity, and normalize social financing.'
Another growth driver is the advanced technology industry. The budget to support this science and technology sector has been set at 398.119 billion yuan (approximately 79.9 trillion won). Premier Li emphasized that 'we will continue to promote the AI Plus (AI+; the strategy of combining artificial intelligence with other industries) initiative, better combine the advantages of digital technology and manufacturing, and significantly develop next-generation smart devices such as smart connected new energy vehicles (electric vehicles, hydrogen vehicles, hybrid vehicles), AI smartphones, computers, and intelligent robots, along with smart manufacturing facilities.'