After targeting and achieving 5% GDP growth in 2025, China has lowered its ambitions for this year. At the opening of the annual parliamentary session, authorities announced a growth target for 2026 between 4.5% and 5%.
This is the first time since 1991 that Chinese authorities have aimed for economic expansion below 5%.
Behind this lower target lies the intention to achieve more qualitative and therefore more sustainable growth.
In the past, in order to meet ambitious economic targets set by the central government in Beijing, local authorities often overinvested. This led to a real estate crisis and industrial overcapacity.
By targeting more moderate GDP growth, Chinese authorities aim to avoid these excesses. They also gain greater room for manoeuvre to reform the Chinese economy.
The new five-year plan for 2026–2030 foresees investment in innovation and industrial modernisation, as well as a “notable” increase in household consumption to reduce dependence on exports.
Reducing dependence on foreign economies also involves a 40% increase in research and development spending over the next five years. The objective is to develop what President Xi Jinping has called “new productive forces” in areas such as artificial intelligence and semiconductors, with the aim of achieving technological independence.
Faithful to its long-term vision, Beijing accepts slightly slower growth to secure the country’s economic future. Even with growth of “only” 4.5%, the objective set in 2020 of doubling GDP per capita by 2035 would still be achieved, bringing China’s wealth levels closer to those of developed economies.
The largest energy importer still has advantages
With energy prices surging due to the conflict in the Middle East, China might appear vulnerable. Washington is well aware that by targeting Iran and destabilising the region, it also affects China’s energy supply.
However, China’s energy structure is evolving. Renewable energy, a sector in which China dominates globally, is taking an increasingly large share of the country’s energy mix. Coal remains present, while for hydrocarbon supplies, China can rely on Russia, from which it imports at discounted prices.
In external trade, China’s competitiveness remains strong. While trade relations with the United States remain highly turbulent, China continues to expand its global trade activity. For the first two months of the year, exports rose by 21.8% and imports by 19.8%. The trade surplus for this period exceeded €183 billion.
Moreover, growth is no longer driven solely by low-value-added goods. Products with high technological content are advancing strongly. Automobiles, smartphones, batteries and solar technologies are among the sectors driving expansion.
China intends to go further. Robotics, aerospace, advanced semiconductors, biotechnology, artificial intelligence and nuclear fusion are among the strategic industries included in Beijing’s new five-year plan. China aims to invest heavily in these sectors to strengthen its position across global value chains.
The weakness of domestic demand
Such expansion should eventually create employment and wealth. However, it will not immediately revive domestic demand, which remains fragile.
This weakness in the internal market partly explains why Beijing has revised its growth target downwards to the 4.5%–5.0% range.
Domestic demand, therefore, represents the main Achilles’ heel of the Chinese economy. At the same time, the sharp rise in exports could eventually generate dissatisfaction among trading partners, potentially prompting protectionist measures to shield local industries.
At this stage, however, with the United States partially sidelining itself in global trade dynamics and Chinese imports rising by nearly 20% year-on-year, China remains an essential player in global commerce and retains strong growth potential.
Despite the tensions in the Middle East, China continues to play a central role in global trade thanks to its industrial expertise and its ambition to expand into new technological sectors.
Although weak domestic demand remains a concern, the country maintains exceptional competitiveness and benefits from a unique ecosystem in many strategic industries.
For this reason, Chinese equities remain a part of a properly diversified portfolio. We allocate 5% to Chinese equities in a defensive portfolio and 10% in a balanced or dynamic portfolio.
