Growth target reflects focus on structural reform

China's latest Government Work Report signals a shift toward securing more sustainable expansion, as policymakers lower the headline target while prioritizing structural reform and long-term stability, economists said.

The report set this year's GDP growth target at 4.5 to 5 percent, marking the first downward adjustment since 2023. Economists said the move is a pragmatic recalibration that underscores the country's stronger focus on high-quality development and the durability of its growth momentum.

Yu Xiangrong, head of China Economics at Citi, said that a key signal from the report is that 2026 could mark the return of nominal GDP growth. Policymakers are seeking a more cautious balance between short-term economic stabilization and long-term structural reform, avoiding strong stimulus while focusing on strengthening economic fundamentals.

"Taking the initiative to moderately scale back growth targets at the start of the 15th Five-Year Plan (2026-30) period is intended to create policy space for structural adjustments, risk prevention and deeper reforms," Yu said.

He noted that although the GDP growth target has been lowered for the first time since 2023, the bottom line for employment remains unchanged. The employment targets matter more than the growth figures themselves, Yu added.

During the economic transition, growth and the labor market may temporarily decouple, Yu said. For example, technologies like artificial intelligence could affect employment in the service sector, making it crucial to safeguard the employment bottom line, he added.

Ding Shuang, chief economist for China and North Asia at Standard Chartered, said the GDP growth target set in this year's work report signals a shift toward prioritizing quality growth and leaves room for structural adjustments. The report's pledge to "strive for a better outcome" suggests that 4.5 percent is likely to serve as the floor for growth this year, he added.

Ding said that other key economic targets remain largely unchanged from last year, with greater emphasis on fighting deflation — as reflected in the call for a moderate rise in consumer prices. Given the recent commodity price rally and China's ongoing anti-involution campaign, economists at Standard Chartered said that moderate inflation is achievable, forecasting average CPI inflation of 0.6 percent in 2026.

Cheng Shi, chief economist at ICBC International Holdings, noted that this year's target range, compared with those in the Government Work Reports from 2023 to 2025, reflects a more flexible and forward-looking approach to macroeconomic regulation.

"A target range not only reflects confidence in China's economic growth potential, but also enhances policy flexibility and adaptability amid a complex external environment, creating more favorable conditions for structural adjustment, risk prevention and reform," Cheng said.

"The report also stated that the country will strive for better GDP growth in practice, continuing to pursue progress while maintaining stability and doubling down on proactive policy moves," he added.

Zhang Wenlang, chief macro analyst at China International Capital Corp, said the GDP growth target for 2026 strikes a balance between long-term sustainability and short-term necessities. The work report also maintains a flexible and proactive stance on overall monetary and fiscal policies, while structurally placing greater emphasis on improving quality and efficiency, with clearer support going to key sectors.

On consumption, structural policies aimed at strengthening households' spending capacity will proceed alongside cyclical measures designed to boost consumption. On the industrial front, the work report cited "fostering new growth drivers at a faster pace" and "moving faster to achieve greater self-reliance and strength in science and technology" as the second and third major tasks for 2026, underscoring their priority, Zhang said.

"We expect exports and growth drivers in the new economy to remain structural highlights this year. Price levels are likely to improve, and nominal growth is expected to see a moderate recovery," he said.

jiangxueqing@chinadaily.com.cn