China announced a shift in its economic policy on Thursday, March 5, setting a target for Gross Domestic Product (GDP) growth between 4.5% and 5% in 2026 – the lowest in three decades, excluding the pandemic period – shifting its focus away from exports to address industrial overcapacity and rebalance the economy, with incentives for household spending and investment in cutting-edge technology.

The announcement was made by Premier Li Qiang, the country's second most important leader, during a meeting of the national parliament, in which the Chinese government also outlined its 15th Five-Year Plan – the strategic plan for the next five years.

As widely expected, Li promised investments in innovation, high-tech industries, scientific research, and a "remarkable"—but unspecified—increase in household consumption as a percentage of economic output.

"We need to enhance our own capabilities to deal with external challenges," Li said, hinting at some leeway to steer the economy through complex geopolitical terrain – including conflicts in the Middle East and the threat of increased trade pressure from President Donald Trump – while continuing to pursue the government's strategic goal of technological self-sufficiency relative to the U.S.-led West.

The plan envisions fostering new engines of economic growth in emerging industries such as quantum computing, biofabrication, hydrogen and fusion energy, brain-computer interfaces, embedded intelligence, and 6G mobile networks. "Amidst fierce international competition, we must win the strategic initiative," states the five-year plan document, in which the term " artificial intelligence " is cited more than 50 times.

The difficult decision to readjust the growth vector, increasingly dependent on exports – China recorded a record trade surplus of US$1.2 trillion last year – surely took into account the American tariffs , which are expected to continue to represent an obstacle to GDP growth, as became clear from the second half of last year.

In this sense, the government must have concluded that a significant rebalancing of China's growth model would be difficult to achieve in conjunction with its long-standing goals of technological and industrial dominance.

Over the past five years, the American government has attempted to prevent Chinese access to cutting-edge Western technology, particularly in the area of semiconductors. This White House strategy has not prevented China's rise in electric vehicles, artificial intelligence, robotics, and a range of other advanced technologies.

But much of this progress remained out of reach for the Chinese population, impacted by a domestic economy tainted by a deflationary environment, in which overproduction and insufficient demand fueled predatory competition that eroded profits.

In this scenario, detected since the pandemic, consumer and business confidence plummeted, wage growth stagnated, and youth unemployment remained close to historically high levels. The still-persistent housing crisis only exacerbated the situation.

Long term

The change in strategy, however, does not signify a break with the centralized, long-term economic planning that has been the hallmark of the Chinese communist regime.

By setting a GDP growth target between 4.5% and 5%, the government is approaching the minimum level needed to achieve one of its main policy objectives: reaching the GDP per capita of a "middle-level developed country" by 2035. To achieve this goal, China's GDP will need to grow by an average of 4.17% or more over the next decade.

Among the measures announced, the government presented new tools to boost investments worth 800 billion yuan, equivalent to US$116 billion, in the domestic economy. The country also set aside 100 billion yuan for loans to consumers and businesses.

The consumer inflation target of around 2% for this year remained unchanged from 2025. Last year, the consumer price index was stable, reflecting weak demand in an economy where households are increasingly concerned about job prospects and the value of their homes.

The announcement that the Chinese government will increase its military spending by 7% this year compared to last year, raising the expenditure to approximately US$277 billion — roughly one-third of the military spending proposed by the Trump administration for fiscal year 2026 — has drawn the attention of analysts.

The continued attacks by the US and Israel against Iran, and the American attack on Venezuela in January, may have deepened the distrust of Chinese leaders towards the White House.

“Donald Trump may think he is demonstrating sufficient military strength to intimidate China,” said Daniel Russell, former Assistant Secretary of State for East Asian and Pacific Affairs and now an analyst at the Asia Society Policy Institute.

“But its actions in Venezuela and Iran will likely reinforce the Chinese government’s determination to strengthen its ability to resist the US and tighten its alignment with Russia,” Russell warned.