Deflation and tariff-hit China sets lowest growth target on record at 4.5% to 5%

China on Thursday set its GDP growth target for 2026 at 4.5% to 5% — the lowest target on record going back to early 1990s — according to a copy of the government work report seen by CNBC, as Beijing grapples with persistent deflationary pressures and trade tensions with the U.S.

That target marks a downgrade from the “around 5%” set in the past three years and the most modest goal so far for the world’s second largest economy, barring 2020 when Beijing did not set a growth target due to the pandemic.

Beijing also kept its budget deficit target unchanged from last year’s “around 4%” of GDP, as the National People’s Congress, the country’s top legislative body, holds its annual meeting this week.

The 4% deficit target first set in 2024 is the highest on record going back to 2010, according to data accessed via Wind Information. The prior high was 3.6% in 2020.

Chinese policymakers also kept their annual consumer inflation target steady at “around 2%.” First set in 2025, that’s the lowest level in more than two decades and signals an implicit acknowledgement by Beijing of lackluster domestic demand.

The inflation goal acts more as a ceiling than a target to be realized. For all of 2025, price growth was flat, and 0.7% when excluding food and energy prices, as consumer confidence remained soft.

China plans to issue 1.3 trillion yuan ($188.47 billion) in ultra-long-term special treasury bonds in 2026, same as last year and allocated 250 billion yuan to support consumer goods trade-in program.

“The growth target is quite realistic. It’s a further shift from a ‘number-first’ mindset towards a ‘quality-first’ one,” said Tianchen Xu, senior economist at Economist Intelligence Unit.

“Beijing doesn’t necessarily see high growth rates as a good thing, because it may incentivise local officials to exaggerate growth,” Xu said.

The relatively modest fiscal stimulus also aligned with the more conservative growth target, he added.

China also seeks to keep the urban unemployment rate, which stood at 5.2% last year, at around 5.5% this year and added 12 million new jobs in urban areas

The country’s annual parliamentary gathering, known as the “Two Sessions,” kicked off Wednesday with the opening ceremony of the Chinese People’s Political Consultative Conference — a top policy advisory body.

The NPC started its meeting Thursday and is expected to wrap up its annual session on March 12. The foreign minister and heads of several economic departments are due to hold press conferences in the interim.

While China’s economy expanded by 5% last year, the country has entered a fourth year of deflation amid real estate slump, weak consumer confidence and local government debt stress. Retail sales rose 3.6% in 2025 and factory-gate deflation deepened, falling 2.6% from a year earlier.

Fixed-asset investment declined 3.8% last year — the first annual decline in decades. The real estate drag deepened with investment in the sector plunging 17.2%.